Maharashtra Scooters : Value of Listed Investments Make it a great value pick?

Chasing indian holdco discounts, especially those run by promoter entities is a tricky game to play. The majority stakeholder doesn’t have any incentive to pay the minorities a price in excess of the current market price, irrespective of its intrinsic value. In the case of Maharashtra Scooters, it is even more complex since the holdco has a very small market cap and Bajaj can keep ignoring it / squeeze the minorities at throwaway prices by making one of their private promoter entities take over the minority shareholding. The same was incurred by WMDC, a MH Gov holding, who got paid way less than its intrinsic value. Hence in my view, I don’t see the discount closing down by a huge margin (apart from minor monthly fluctuations).

I am much more comfortable owning Bajaj holdings given the size of the co, and it’s existential purpose. Amit Wadhwaney from Moerus too has invested in the later than the former.

Disclosure: Not owning either, this is not an advice, please do your own due diligence

Gaurav,
The point you are referring about lower price given to WMDC is technically not comparable because there was already an agreement with WMDC for their stake sale to which promoters had done written agreement . ( details of the case argument)
secondly how can minorities be squeezed by private promoter entities .Request you to kindly elaborate. Any previous similar cases ??
I can see names of Ramdevji and Motilalji in top shareholders list , i dont think bajaj group will loose their credibility .

What I meant by a minority squeeze was something like this:

Scenario 1- Bajaj intends to buy-back the shares in Maharashtra Scooters, Bajaj sees no incentive in paying above the current discounted market price. Shareholders either accept and sell @ discount or the buy back doesn’t go through.

Scenario 2- Bajaj doesn’t care about a small co. like Maharashtra Scooters, let’s it languish for the foreseeable future. The discount keeps getting wider with no activity from the management.

The only triggers will probably be when someone intends to merge/acquire a controlling stake in Bajaj entities and thereby offers to buy-back Maharashtra Scooters at a higher price than that which is currently being quoted. I doubt Bajaj will be selling any of their entities unless they face some severe financial distress.

Regarding Ramdeo, his stake is quite small and major entities like PPFAS were also holding shares in the co. but their patience ran out and they reinvested the proceeds in Bajaj Holdings.

But I can be wrong, and your views can differ from mine.

Hi all,

I have constructed the graph which @anirband87 asked for, I think this graph can actually help us understand things better and actually reveal if the change in P/I value (Price/Investment value)
(which is nothing but 1 - Discount %) is due to this factor or because of the change in investment value held by MSL.

This is the graph, which I have constructed using the data available to me.
1. Orange line: Price Value (The closing price of that day for MSL)

2.Black Line: Investment Value (Core holdings of Bajaj group with MSL calculated using the closing price can also be called the ‘Book Value’ or “Net Value Per Share”)

3.Blueline: P/I value (%) (Price/Investment value %, which I had presented in the previous post)

On looking at this graph the first time, It was extremely overwhelming but on closer observation, I noticed something.

I noticed several spikes in the MSL graph (on a closing price basis) during several periods specially when the P/I Value touched 27%/28%, this spike might look small at a first glance and one might think that it doesn’t really mean anything substantial but all those awkward spikes indicate a return of 20/30% at least and one can actually observe this easily.

            Talking about the orange line, MSL price on closing basis

1st spike: Takes place near 01/12/15 when the “Net value per share” was increasing steadily but the Price of MSL (price value) was decreasing rapidly which brought down the P/I to 28% odd levels, and after touching that zone it spiked significantly.
MSL went from 900 levels to 1400 levels

2nd Spike: Takes place near 01/12/16 when the “Net value per share” was increasing steadily but the Price of MSL (price value) was decreasing rapidly which brought down the P/I to 28% odd levels, and after touching that zone it spiked significantly.
MSL went from 1500 levels to 2000 levels

3rd Spike: Takes place near 01/10/17 when the “Net value per share” was increasing steadily but the Price of MSL (price value) was increasing at a slower pace which brought down the P/I to 30% levels this time and after touching that zone it spiked to lower 40% levels.
MSL went from 2400 levels to 3050 levels

4th and 5th spike: These spikes were absolutely meaningful but the fourth spike never reached attractive levels for a person to take positions, the 5th spike actually tested the patience of the investor, it had touched a good level back in 1/12/18 but took almost 6 months to reach a good level for us to offload our position.

My Observations:

The common thing in all these spikes was the gradual decrease in the P/I level, with a steady increase in the investments but the price of MSL decreasing/growing at a slower pace than compared with the Investment value.

but…

This time MSL has actually retested the 7 year level and the P/I Value (%) is now at 24% levels and has been significantly decreasing for the last one year since the infamous crash back in 2020. The P/I value decreasing, Investment value shooting up rapidly and Price value of MSL decreasing or growing slowly does match with what we have observed in the past, but the past barely resembles the future…

Is this scrip actually testing the patience of the investors and will soon be rewarding them with handsome returns or the discount will continue to be at such high levels only?

Where are we really headed?
Let me know :slight_smile:

Disclosure: Invested.

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Hi Shivansh, This is amazing work…thanks.
As a holder of mah scooters for over a decade now i always wanted to
construct something like this but found it daunting.

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Gaurav_Sheregar,
Can you kindly share the stake (the exact quantity of shares) PPFAS held prior to disinvesting it in favour of Bajaj Holdings? I am not able to understand why they preferred Bajaj Holdings over Maharashtra Scooters. What makes you think ‘their patience ran out’ ? Have you anywhere come across such a statement made by them? In what ways do you think investing in Bajaj Holdings requires less patience?

Disclosure: Invested

Hi Sudhakar, I talked to PPFAS just after they did it as I was curious too. They said they were growing AUM and had a liquidity concern. That was the only character for the switch. Liquidity of MahSco compared to Bajaj Holdings. …

Hey Sudhakar,

I am not sure why PPFAS sold and diverted their stake to Bajaj holdings, one can never be sure of the exact reasons unless one works in the investment team of PPFAS. So yes, it is my presumption that they felt they will be able to generate superior returns in the later. But that is not of much concern to me as PPFAS can be wrong too, so one should not take that at face value.

I have highlighted my concerns in the above points of why Maharashtra Scooters can take a long long time (maybe never) to see its discounts narrow down/disappear. If you feel otherwise then probably we can discuss your narrative :slight_smile:

Regards,
GS

Ppfas sold & converted to Bajaj Holdings as they wanted to reduce exposure to Bajaj Finance, as they felt it was overvalued then. I guess Bajaj Holdings is relatively leaner on Bajaj Finance.

IMO, the triggers for this undervaluation gap to close will be a cigar-butt’s reversion to mean.

The charts and 5-yr performance data shared above are clear contrarian indicators of that. Not saying that it’ll outperform the underlying cos. but the risk is better covered here in case any of the underlying cos underperforms. Also 2 more factors to consider : -

(a) With consolidation of promoter holding under Bajaj grp, they might diversify some funds into other debt\equity investments making this a small-version Bajaj Holdings. They have no plans of closing out as confirmed in the last AGM.

(b) With dividend payout policy becoming favorable frm last yr, relatively better payout is expected. This driver vl also make valuation attractive on dividend yield basis.

Disclosure : - Invested

@Shivansh_Bansal Kudos to you for your efforts and research as it had provided valuable insight.

I just came across company called Hindustan housing company - only listed in BSE, almost no trading happening in this counter and promoted by Bajaj group.

CMP is 35 INR and book value is around 9000.

There is one more example ELCID Investment though not bajaj group. It had investment in Asian paints and same - no trade happening as price is around 15 and book value is 4 lacs and All trade happens in grey market around 85k.

Would wonder if there is any possibility that same could happen with Maharashtra scooter?

Thanks!

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Here is a rough comparison between Maharashtra scooters vs Bajaj Holdings.
image

I used trendlyne site data for value of holdings.

If you had to choose between the two on pure value basis, Maharashtra Scooters looks better as it has higher discount (so has to catchup to Bajaj Holdings discount) and gives better dividends.

I don’t understand why Maharashtra scooters book value is so high though compared to Bajaj Holdings, if both companies are just investment holding vehicles…

You should only rely upon exchange notices for such calculations. Took me just 5 min to do it. BHIL’s P/B is roughly 30% as of today’s value. Just to highlight that your calc is way off the mark. So pls be very careful for your own sake. And here’s the sheet I referred to.

Rgds
RR

is this what you are referring to?

the book value here is even lower at 1306 (vs 3964 in trendlyne and also screener .in).

market value based on NAV (which I refer to as “per share value”… I will correct it as “NAV per share” and edit order of rows for better understanding) is Rs 11648 here while the data from trendlyne was Rs 11190 but thats due to diff dates (Bse report is 30 June, and trending I took 26 July). This part - the discount of CMP to the current NAV - there is no doubt.

But you said P/B is just 30%… are you saying your Book Value = NAV value?

my confusion is highlighted row… why Maha scooters BV is so high vs BH…

image

Sorry…I meant p/nav.
BV in these holding companies has little relevance just like in case of an fmcg.

I never looked at MSL but my guess is that BV is higher due to maybe a higher acquisition price at which it acquired the assets. But again bv has little relevance here.

As an aside, it is better to invest in underlying companies (if listed) than the holding companies. Holding companies are created for many reasons…mostly to protect promoters’ own interests. From whatever I hv seen, in the long run, a holding company gives a far lower return compared to its underlying assets/companies. However, in the short run, the nav fluctuates, though rarely in a wide band, but could be wide enough to entice us as investors and make us feel we are getting a good bargain….but that good bargain would still lead to a far lower return, if the actual value is being created by the underlying asset/company whose value will grow far more than the holding company.

On the other hand, an investor could justify investing in holding companies saying that - I am ok with a lower return as long as I have a higher protection in bad times as then the holding company price will fall less than the underlying company.

Rgds
RR

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As Dividend Tax is abolished and holding company can transfer dividend without double taxation. This cascading effect will increase the cash inflow of Holding company. And if they choose to pass the dividend then discount is bound to narrow, because of this I see opportunity in this area for next 2-3 years.

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Does anyone know why the dividends are not being paid out in full? Ideally the dividends from the investments should be passed through as the new tax laws would allow them to be exempted from income tax but the dividend yield is hardly 1.5% currently.

In the last half year they made a PAT of 136 CR, if they paid it as a dividend there should have been a dividend yield of 2.9% for the half year.

I’m not an expert in reading balance sheets but i see Purchase of investments of 124 cr in the cash flow and divident of 54 cr
I went through the share holding patterns of the held companies bajaj auto, finance and holdings and there is no change in the number of shares maharastra scooters owns.

I went throught the last two annual reports and it looks like they are investing a majority of the money into NCD’s of bajaj finance and other debt instruments.

In this case i don’t think an investment in Maharastra scooters makes much sense, the dividends are being used to buy low yielding fixed income assets that are going to be taxed. It looks like the promoters have some plan for this, they may possible using this company like an emergency fund.

In theory there is a lot of value but if even the cash flows are being hijacked i dont see what the point is in investing in it.

https://www.bajajauto.com/MSL-html/html/images/pdf/Annual-Report-2019-20.pdf page 80

https://www.bajajauto.com/MSL-html/html/images/pdf/MSL-Annual-Report-2020-21.pdf page 70

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PPFAS is buying Maharashtra Scooters in their flexi cap fund. I guess the discount was in a sweet spot - above 80 percent.

PPFAS tax saver also has added 4% of Maharashtra Scooters recently!

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Did an analysis of Bajaj Group companies and their holding structure.
The spreadsheet is updated dynamically based on market price.

Maharashtra scooters is available at around 80% discount and Bajaj Holding at 57%

There is a lot of cross holding between the group companies.

The listed ones that are studied

Also a few listed/ unlisted ones which i have not done indepth studies of currently. But will try to update the spreadsheet soon or if any fellow boarder can help with that.

So with layers of discounting - bajaj hoilding itself holds around 50% of Maharashtra scooters the value of the underlying assets is deeper than it looks on the surface…

As of today it looks like this.

You can see the spreadsheet here and ping me if you want to help contribute in making the analysis more sound.

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