SP group’s stake  value may be new point of friction with Tatas

Differences over valuation, large capital requirement and the construction of Tata Sons Ltd are prone to be key hurdles within the proposed separation means of Shapoorji Pallonji group from the Tata group.

The first level of friction may very well be the valuation of the SP group’s 18.4% stake in Tata Sons. While Tata Sons’ court docket filings peg the valuation of this stake at round ₹1.5 lakh crore, the SP group claims it’s nearer to ₹1.eight lakh crore.

“Valuation will be a big issue. That will be the first most important challenge,” a senior associate at one of many Big Four audit companies mentioned on situation of anonymity.

According to specialists, in case SP group can’t herald a purchaser who will suggest a worth for its stake, arriving at a consensus valuation may grow to be a difficult subject.

“Valuation is always a challenge in deals where there is only one buyer. The SP group seems to have a compulsion to sell; so, they will be under pressure when it comes to bargaining for a better value,” the particular person cited above mentioned.

“The challenge for SP group is to find a buyer or a consortium of buyers that can offer the value that they are seeking,” he added.

A second particular person, an funding banker, mentioned arriving at an agreeable valuation may transform a long-drawn course of.

“You will have to appoint an independent valuer, ideally one of the Big Four audit firms. Given the scale of the Tata group, especially the long list of unlisted companies, arriving at a valuation could be a long exercise that could take three to six months.

He added that the valuation of Tata Sons could also be impacted by a holding company discount.

“In a holding company structure, one would calculate the value of the underlying assets and then provide for a holding company discount, which could be as much as 20%. If an external buyer has to value it, then they will consider a holding company discount, to account for the leakages when the dividend is upstreamed from the operating company to holding company,” he added.

To make certain, others really feel that valuation may not find yourself being a serious bone of rivalry.