Tata Power shares: Tata Sons listing may unlock value; brokerage decodes impact

Tata Power Company Ltd could see potential value unlocking from a possible listing of Tata Sons, according to Axis Capital, which has maintained an 'Add' rating on the power utility stock and a target price of Rs 415 per share.

In its latest report, Axis Capital said Tata Power owns a 1.65 per cent stake in Tata Sons, the holding company and promoter of several Tata group companies. The stake is carried at a book value of around Rs 4,189 crore.

The brokerage noted that if Tata Sons were to list at a valuation of Rs 10 lakh crore, within the reported Rs 9-12 lakh crore range, Tata Power's 1.65 per cent holding could be valued at around Rs 16,500 crore.

According to Axis Capital, this value would be equivalent to around 14-15 per cent of Tata Power's current market capitalisation (m-cap). Applying a 30 per cent holding-company discount to the estimated value of the stake, the brokerage calculated a potential SOTP (sum-of-the-parts) optionality of around Rs 35 per Tata Power share from a Tata Sons listing trigger.

Tata Sons' listing prospects moved closer to the spotlight after the Reserve Bank of India (RBI) rejected its application to surrender its core investment company registration. This implied that Tata Sons may continue to be categorised as an upper-layer non-banking financial company (NBFC).

Axis Capital also highlighted the reverse holding structure between the two entities. Tata Sons owns 45.21 per cent of Tata Power, with its current holding valued at around Rs 53,000 crore based on Tata Power's market value.

At a potential Tata Sons valuation of Rs 10 lakh crore, Tata Power's market value would represent around 5.3 per cent of Tata Sons' overall value, the brokerage said.

Meanwhile, Tata Power shares were last seen trading 0.43 per cent lower at Rs 361.75 in Wednesday's late trading session. At this level, Axis Capital's 12-month target price of Rs 415 implies an upside potential of 14.72 per cent.