Credit Suisse Values Tcs At $20.7 Billion
The listing of Tata Consultancy Services (TCS), a division of Tata Sons, is expected to unlock a huge amount of hidden value in some of the largest group companies, according to a recent report by Credit Suisse First Boston.
The investment bank has valued TCS, in an informal report on Telco, at $20.7 billion, or Rs 92,000 crore, on the basis of a `conservative' price-earnings multiple of 100.
TCS' P/E multiple of 100 is much lower than that of Infosys Technologies or Satyam Computers, at 198 and 135 respectively. However, both the ICE majors are much smaller than TCS in terms of turnover, profitability or export earnings.
Because of the Tata group's cross-holdings, at least five group companies_Telco, Tata Steel (through wholly-owned subsidiary Kalimati Investments), Tata Power, Tata Chemicals and Indian Hotels_have a large stake, about 11.2 per cent, in Tata Sons.
While Telco and Kalimati hold 3 per cent each, Tata Chemicals has 2.5 per cent, Tata Power 1.6 per cent and Indian Hotels 1.1 per cent. The number of shares held by each company increased by 50 per cent last year, following Tata Sons' 1:2 bonus issue, the second since 1997.
TCS had posted a Rs 480 crore profit on a turnover of Rs 1,700 crore in 1998-99. The figure for 1999-2000 is expected to increase by at least 50 per cent due to large export orders the company has bagged.
This valuation compares favourably with the valuation of TCS by Goldman Sachs in 1998. The external agency, although not confirmed by the Tata group, valued TCS at $4 billion, 20 per cent of its present `conservative' worth.
On the listing of TCS, group officials maintain that the holding company is still undecided on the issue.
Although the Tatas were bitterly criticised for using funds of their group companies during Tata Sons' rights issue in 1995-96 to hike stake in the holding company, shareholders of these companies may finally get rewarded, provided the technology boom lasts.
Going by the $20.7 billion valuation, the stakes of Telco and Tata Steel in Tata Sons will come to 77 per cent and 73 per cent of their present market capitalisation. In case of Tata Chemicals and Tata Power, the hidden value is three times and 2.7 times their present market cap.
About 60 per cent of Tata Sons' Rs 40.4 crore equity base is held by Tata Trusts, with a less than 2 per cent holding by the Tata family. The single-largest shareholder in Tata Sons is construction baron Pallonji Mistry with an 18 per cent stake.