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Tata Sons may use TCS windfall to cut debt

Tata Sons Ltd is set for a windfall with as much as Rs 12,603 crore from Tata Consultancy Services (TCS) through share buybacks and dividend income in the first half of the financial year. It is a windfall gain that the company can use to pare debt in several group companies.

The company is expected to get at least Rs11,502 crore from the 54.7 million scrips it plans to tender in the TCS share buyback. The Mumbai-based conglomerate has already received about Rs1,100 crore as dividend for the first quarter. Tata Sons earned Rs 24,760 crore by tendering shares in a buyback and dividend from India’s largest information technology outsourcing company last year.

The proceeds can be used to retire debt at some of its group firms, including Tata Motors Ltd and Tata Teleservices Ltd, three analysts said.

The move is part of the company’s ongoing efforts to cut debt and make the group more agile. But it also exposes the holding company’s over-dependence on TCS. “There is a pressing need to reduce debt in Tata Power, Tata Steel and Tata Motors (about Rs 2.3 trillion in total). They could use this money in the form of additional equity in any of these indebted companies,” said the first analyst at a Mumbai-based brokerage firm. “Last year, Tata Sons used much of the money got from selling shares (of TCS) and from a buyback in reducing the debt of its telecom businesses and also in making the payments due to Docomo,” said another Mumbai-based analyst at a foreign brokerage. “This year’s proceeds should be used for retiring debt of Tata Motors,” he said.

“Both Tata Steel and Tata Motors, with large capex requirements, should see capital infusion,” said the third Mumbai-based analyst at a domestic brokerage. “TCS giving back money to shareholders is actually good for minority shareholders. And because Tata Sons holds more than 70 per cent stake, it is the largest beneficiary. Now, TCS is doing well, so it’s always debatable how else could the company have used the cash—either in investing more in its existing business or to buy companies.”

An email sent to Tata Sons seeking comment remained unanswered till the time of publishing this story.

“I really don’t know what the company is doing from a larger perspective. But, clearly it is fighting the debt problem and leading the fire fighting in some of the companies,” the first analyst cited before saying,  “TCS has been their story for the last decade. TCS has been shining while others have been growing but that growth is fuelled to an extent by debt and one such example is Tata Steel. They had to take an urgent action to reduce debt by selling Corus to Thyssenkrupp.” Chandrasekaran, who took over as chairman of Tata Sons in February 2017, has inherited a set of companies that had been under pressure for a while (including Tata Motors’ domestic business), an unstable leadership team in the interim period after the ouster of Cyrus Mistry, a legal dispute involving NTT Docomo, the troubled operations of Tata Steel in Europe and the never-ending debate over the future of Tata Nano.

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