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Why the Tatas need a whopping Rs 11,000 crore

By Dev Chatterjee
January 30, 2015 08:40 IST
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Tatas may look at selling part of its stake in couple of investments

Image:Tata Sons will have no problem raising additional funds through several avenues, should the need arise. Photograph, courtesy: Cyrus Mistry/Facebook.

Tata Sons, the holding company of the $100-billion Tata group, would require a massive dose of funds of upto Rs 11,000 crore (Rs 110 billion) to retain its stake in Tata Motors, buyback Docomo’s stake in the loss-making Tata Teleservices and to pay off the telecom company’s loans. This excludes fresh investments planned by Tata Sons in its two airlines and in the defence sector.

Analysts say Tata Sons and other group companies would require around Rs 2,575 crore (Rs 25.75 billion) to maintain its 34.75 per cent stake in Tata Motors - which is coming out with a Rs 7,500 crore (Rs 75 billion) rights issue.

Besides, the Tata group company has also applied for government's permission to acquire Japanese telecom major, NTT Docomo’s 26.5 per cent stake in Tata Teleservices for Rs 7,250 crore (Rs 72.5 billion) and has given an undertaking to banks last year that it will pay off Tata Teleservices debt to the tune of Rs 2,000 crore (Rs 20 billion) by 2016.

“A lot of fund requirement for Tata Sons has come at the same time. The group is also building its airline and defence businesses. But due to its good financial profile, fund raising for Tata Sons should not be a problem,” said a banker.

The company owns 73.90 per cent stake in India’s biggest software exporter, Tata Consultancy Services, which is worth Rs 3.63 trillion as on Thursday. Besides, the company has strong liquidity as reflected in its cash and bank balance of about Rs 5,980 crore (Rs 59.8 billion) as on March 31, 2014.

Tata Sons' sound capital structure is also reflected in its low gearing that has remained stable over the past six years, at around 0.5 times, as on March 31, 2014. Just last week, Tata Sons came out with a Rs 300 crore (Rs 3 billion) bond issue, which was lapped up by institutional investors for its sound financials.

Tata Sons also holds substantial equity stakes in all top Tata group companies apart from unlisted companies like Tata Sky Ltd, Tata Capital, Tata Realty and Tata Starbucks. All these companies are doing very well in their respective industries and analysts say these equity investments provides ample financial flexibility to Tata Sons in raising additional funds through several avenues, should the need arise.

Tatas may look at selling part of its stake in couple of investments to raise funds though nothing has been finalised as yet.

When contacted, a Tata Sons spokesperson said: "We do not share information on such matters. Suffice to say that, from time to time, Tata Sons raises funds as part of its on-going activities."

For 2013-14, Tata Sons reported a profit after tax (PAT) of Rs 3,050 crore (Rs 30.5 billion) on total revenues of Rs 5,430 crore (Rs 54.3 billion), as against a PAT of Rs 3,710 crore (Rs 37.1 billion) on total revenues of Rs 5,750 crore(Rs 57.5 billion) for 2012-13.

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Dev Chatterjee in Mumbai
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