Tata Sons Ltd is considering selling stakes in some of its financial services units, a move that the company hopes will help unlock value and raise funds for investments in newer businesses such as online retail, two people directly aware of the company’s plans said.
The Tata group holding company has set up a team to explore value-unlocking opportunities in its financial services companies through stake sales to strategic and financial investors, the people said on condition of anonymity. The group’s financial services units include Tata Capital Ltd and Tata Asset Management Ltd.
“The talks are currently at an exploratory stage,” said one of the two people cited above. “Several large global investment banks have been sounded out, and a final road map will be laid out soon.”
The process may take time as it involves valuing the companies and gauging potential buyer interest, said the second person.
Tata Sons, under chairman N. Chandrasekaran, is trying to leverage digital technology to reach out to consumers and build large consumer-facing businesses. In March, Tata Sons agreed to buy India’s largest online grocer BigBasket in a deal valued at more than $1 billion. It is also planning to launch a super app that will host all the group’s consumer businesses, as the pandemic buoyed online sales.
Emails sent to spokespeople for Tata Sons and Tata Capital remained unanswered until press time on Monday.
“The lending business undertaken by Tata Capital through various divisions is a cash-intensive business, and the group feels that the invested capital once freed can be used more efficiently elsewhere,” said the first person. “The group has not taken a final call on the quantum of divestment and how much it wants to raise from the proposed stake sales.”
Recent corporate filings show Tata Sons maintains strategic linkages, management oversight and control over the financial services business through Tata Capital and has regularly infused equity into the latter. It infused ₹4,950 crore in Tata Capital over FY16-FY20, of which ₹1,000 crore was infused in FY20. However, the combined contribution of financial services towards Tata Sons’ profitability has remained modest. On the asset management side, Tata Asset Management Ltd, the company that runs Tata Mutual Fund, is jointly sponsored by Tata Sons and Tata Investment Corp. Ltd. The fund house reported average assets under management of ₹52,469.81 crore for the fourth quarter of FY20, corporate filings showed.
Tata Sons’ decision to sell stakes in some of its financial services businesses is part of a wider industry phenomenon to monetize ownership in financial services businesses.
In September 2019, Aditya Birla Capital raised ₹1,100 crore through a preferential allotment to Jomei Investments Ltd, an affiliate of Advent International, and PI Opportunities Fund, an affiliate of Premji Invest. On 17 March, the board of Aditya Birla Capital Ltd approved a plan to explore an initial public offering of Aditya Birla Sun Life AMC Ltd. Mint reported on 20 October that private equity giant Blackstone was in talks with engineering behemoth Larsen and Toubro Ltd’s financial subsidiary, L&T Finance, to buy the mutual fund business of L&T Asset Management Co.
