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Tata Sons' financial flexibility to raise capital through pledging shares of its group companies seems to have given a major boost for its investment plans.
Tata Sons' holding of 73.75 per cent in Tata Consultancy Services is valued at Rs 1.71 lakh crore, besides it has a strong liquidity with a cash balance of about Rs 2,000 crore as of March 31, 2011.
Tata Sons' net profit more than doubled to Rs 3,250 crore while net revenue jumped 65 per cent to Rs 4,650 crore (Rs 2,810 crore) during the last fiscal.
Major companies
Tata Sons holds core equity stakes in major group companies including TCS, Tata Steel, Tata Motors, The Tata Power Company, Tata Chemicals, Tata Investment Corporation, Tata Teleservices, Tata Capital, Tata AIG Life Insurance, Tata Industries, Tata Sky and Panatone Finvest.
Tata Sons is the principal investment holding company of the Tata group. About 66 per cent of Tata Sons' share capital is held by public charitable trusts. It is covered under the guidelines on Core Investment Companies, issued by the Reserve Bank of India.
These factors will enable Tata Sons to maintain its overall financial strength over the medium term, despite its participation in the Tata group's large expansion plans, said Crisil while reaffirming its rating on various Tata Sons debt raising programmes.
Risk profile
Tata Sons plans to fund its participation through a judicious mix of debt and sale of investments. With increasing participation in the group's acquisition and expansion programmes, Tata Sons' business risk profile will depend primarily on the return on these investments, which carry risks associated with execution and integration.
Tata Sons' financial flexibility will help mitigate the impact of relatively aggressive capital structure resulting from its participation in the Tata group's acquisition and expansion programmes, said Crisil. The outlook could be revised to ‘negative' if Tata Sons' financial flexibility is adversely affected, most likely in case of a larger-than-expected exposure to Tata group companies.
With Tata Sons' increased participation in its group companies' investment programmes, Crisil expects Tata Sons' capital structure to deteriorate over the medium term. However, the company's continuing financial flexibility will sustain the ratings at their current levels, it said.
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