After the separation of the Ambani brothers, the most talked about issue in the country is the ongoing dispute between the Shapoorji Pallonji Group (SP Group) and the Tata Group. The controversy has grown so much that the two groups, which have been associated for almost 9 decades, are going to separate. Talking to Business Experts about this, Dainik Bhaskar tried to know how the end of their relationship would affect financially especially the Tata Group and how many options it has for withdrawing shares of Tata Sons from SP Group. . Also how much SP group is going to benefit from this?
The relationship between the Mistry family and the Tata family began in 1930. It is said that JRD Tata then needed money to build a steel factory. At that time, it was Palonji Shapoorji Mistry who helped him and gave him two crores of rupees. In return, JRD gave him 12.5% shares of Tata Sons. The same share today stands at 18.37%. Its market value has been close to Rs 1.75 lakh crore.
The reason for relationship deterioration
Cyrus Mistry, who took charge of the SP Group, was made the chairman of the Tata Group for 10 years in 2012, but was removed from the post in just 4 years (2016), unhappy with his working practices.
It is also said that not only Tata companies were suffering financial losses due to the functioning of Cyrus Mistry, but the principles of Tata Group were also left behind. Given these things, a decision was taken to remove him from the post of chairman.
Now mistry wants to end all business relationships
The differences between the two business groups have continued since Cyrus Mistry was removed as chairman in 2016. The SP Group is the largest minority stakeholder in Tata Sons with 18.37% share and a valuation of Rs 1.75 lakh crore. Due to deteriorating relationships, Cyrus Mistry has decided to sell its stake in Tata Sons and end all business relationships with the Tata group.
Difficult for tata group
The Mistry family has spoken of selling its stake in Tata Sons. However, he never said that he would give these shares to the Tata group itself. A Mumbai-based senior research analyst at a well-known broking firm said that given the mood of Cyrus Mistry, it can be said that he can sell these shares to an outsider as well. This decision of Mistry could become the biggest challenge for the Tata group. Right now, it will be a bit difficult for Tata to manage such a large amount from their group or outside to buy shares from Mistry.
Tata group 20 times larger than the SP group
According to the application filed in Cyrus Mistry's court, the value of shares of SP Group in Tata Sons is close to Rs 1.75 lakh crore. This amount is three times the total valuation of the SP group. According to the Economic Times report, the value of the SP group was $ 8.1 billion (about 60 thousand crore rupees) by 2019.
The group's core business is infrastructure and construction. Apart from this, he is also in the energy, real estate, water management, and financial services sectors. The Tata group is 20 times larger than that. Tata's valuation is around Rs 12.5 lakh crore.
What options does Tata have?
1. Sell some shares of TCS
According to a report by the Institutional Investor Advisory Services (IIAS), if the Tata group buys shares of the SP group, it may have to sell some stake in TCS. Tata Sons may have to sell around 16% of TCS to buy shares of SP Group. By doing so, it's holding in TCS will come down from 72% to 56%.
2. External Investment
According to a report by the English business newspaper Mint, Tata Sons is in talks with several investors, including Sovereign Wealth Funds, to buy shares from the Mistry family. According to experts, Tata Sons chairman N. Chandrasekaran is also in contact with several investment funds in Europe. However, the whole matter will be stuck at valuation.
3. Agreement with SP Group
According to a Mumbai-based stockbroker, the Tatas may compromise the SP group to prevent their shares from going out. A Parsi person can mediate for the transaction of shares between Tata and the Mistry family. Ratan Tata is also engaged in this effort to handle the matter. Not everyone can agree on this in the business world, but the possibility of this cannot be ruled out.
4. Option to buy a few shares from the SP group
If an agreement is reached between the two groups, the Tata group may get an option to buy 18.37% shares of the SP group in several parts. This will also reduce the financial burden on the Tata group and will also make it easier to arrange money for it as time passes.
The income of Tata group increased
The revenue of the Tata group was Rs 11 lakh crore in the financial year 2020. The income of the group has increased by 68.65% in the last 10 years. 17 Tata Group companies are listed on the stock market. According to the company's website, the listed companies have a total market cap of Rs 14.33 lakh crore. Of this, the market cap of Rs 10.60 lakh crore is that of Tata Consultancy Services (TCS) alone. In this way, TCS is a financial driving force for the group.
Shapoorji Pallonji Group of Companies
SP Engineering & Construction
SP Engineering, Procurement and Construction
SP Finance
SP Infrastructure
SP International
SP Investment Advisors
SP Oil & Gas
SP Real Estate
Afcons Infrastructure
Eureka Forbes
Forbes and Co.
Forewall International Services
Sterling and Wilson
SD Corporation
Oman Shapoorji
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