Tata Sons taps private equity funds for a stake sale in Tata Digital

TDPL is a subsidiary of Tata Sons and was incorporated in 2019 to develop a consolidated e-commerce platform under the ‘Tata Neu’ brand

Tata Sons is set to start the formal process of selling a minority stake in Tata Digital Pvt. Ltd (TDPL), the company that operates the Tata Neu super app, to potentially raise around $1 billion from global private equity funds, people aware of the ongoing discussions said on condition of anonymity.

According to the people cited above, talks are currently at an informal level with a few bulge-bracket private equity funds, and a formal process will begin in the near future.

“A proposal will be placed in this regard before the board once the valuation exercise is complete and a tentative list of investors is finalized, “one of the people cited above said.

TDPL is a subsidiary of Tata Sons and was incorporated in 2019 to develop a consolidated e-commerce platform under the ‘Tata Neu’ brand, which hosts diversified businesses of Tata companies to connect to and service the needs of consumers on a single platform. “If things remain on track, a deal can be expected before March this year,” the person added.

Tata Neu after the revamp: how is it faring?

In addition to the Tata Neu digital platform, consumer brands such as Croma, as well as loyalty programmes of various brands and digital payment services such as Big Basket, Croma, IHCL, Starbucks, Westside, Vistara and Tata Cliq, are housed in TDPL. The company also owns controlling stakes in e-grocer Big Basket and e-pharmacy 1mg. These acquisitions were funded through a mix of external borrowing and internal accruals. Corporate filings show that TDPL spent close to Rs 12,000 crore in making the acquisitions. For the year ended March 2022, TDPL posted a total operating income of Rs 16.34 crore and a loss of Rs 1,122.88 crore.

“After initial hiccups, TDPL has launched a revamped ‘Tata Neu’ app. It is seeing good traction now. But the real investors’ interest lies in loyalty programs across Tata group businesses such as Vistara’s as well as in Croma, which is an extremely sticky business with a very high customer retention and return rate, “said the second person.

The purpose of the fundraising is to retire part of the company’s debt and infuse equity in the growth stage businesses that need fund infusion.

“Given the Tata name, the group realizes that finding investors will not be difficult, but the focus is on finding a partner who is in line with the group’s strategy and ethos,” said the first person. If the talks are successful, this will be the third time in recent years that a Tata group company will onboard a private equity investor. In 2021, Tata Motors raised $1 billion from TPG Rise in its EV arm and again sold a 9.9 percent stake in Tata Technologies to the private equity fund in October.