Tata Chemicals Faces Setback as Shares Plunge After Speculation on Tata Sons IPO

Tata Chemicals witnessed a sharp decline in its share value by about 9% following a significant rally lasting six consecutive trading days. This drop came in the wake of reports suggesting that Tata Sons, the parent company, is exploring alternatives to bypass an initial public offering (IPO). Kotak Institutional Equities advised caution, indicating that this development should dissipate the buzz surrounding value realization at Tata Chemicals.

Amidst the flux, Kotak maintained its fair value estimate for Tata Chemicals at Rs 780. The analysis further projected a potential two-thirds decline in the company’s earnings per share (EPS) over the period spanning from FY2023 to 2025 due to anticipated margin contractions in its soda ash segment.

Kotak’s recommendation to ‘Sell’ Tata Chemicals stock underscored the recent speculative surge in prices as an opportune moment for shareholders to consider divestment.

Early trading on Monday saw Tata Chemicals’ stock dip by 8.57% to reach Rs 1,202.10 on the Bombay Stock Exchange (BSE), retracting from the nearly 40% surge during the previous six-day upswing.

Speculations pointed to Tata Sons’ disinclination towards an IPO. Initially seeking an exemption from the RBI with regards to ‘upper-layer NBFC‘ regulations, which seemed improbable, Tata Sons now weighs alternative restructuring options to circumvent the regulatory norms.

Kotak’s analysis indicated a low likelihood of an IPO eventually materializing. Consequently, the avenue for unlocking value from Tata Chemicals’ 2.5% stake in Tata Sons appears obscure without a clear path for monetization.

Moreover, given Tata Chemicals’ extended tenure of over 25 years holding the stake without active buyback initiatives by the Tata Group and with minimal market valuation accorded to the stake, Kotak advised regarding stake sale considerations solely as an ancillary aspect rather than integral to Tata Chemicals’ core valuation.

The estimation of Tata Chemicals’ stake value stood at a maximum of Rs 650 per share, assuming a 100% likelihood of a Tata Sons IPO. At the current market price of Rs 1,315, Kotak suggested that the stock may have already factored in a potential IPO, signaling an ideal moment to capitalize on profits.

In a separate evaluation, Kotak also raised queries about the recent price surge in Tata Chemicals’ subsidiary Rallis India. The stock of Rallis India, up until then, held no stake in Tata Sons. The appointment of Mr. Gyanendra Shukla, the former CEO of Monsanto India, as Managing Director triggered an unusual market reaction a week later and seemingly detached from underlying business dynamics.

The shares of Rallis India underwent a declining trend of 3.96% to settle at Rs 276.55 amidst the unfolding developments in the Tata Sons ecosystem.