Opportunities in Holding Companies

I came across this blogpost on Holding companies and the value unlocking potential available there. I am reproducing the same here.

The origin of many of the listed Holding companies in India are due to corporate restructuring wherein operating business were spun-off into separate companies with the parent company becoming a de facto holding company, holding shares in one or more operating companies. Due to such restructuring the shareholders of the existing company became indirect owners of operating businesses. In some cases the Holding companies play an active role in their investee companies while in most other cases they are primarily the storehouse for shares of valuable listed companies. A few such examples are:

Holding Company Its investments Approx discount to Intrinsic value (%)
Alembic Ltd Alembic Pharma Ltd 70%
Kama Holdings SRF Ltd 61%
Kirloskar Industries Kirloskar Ferrous,Kirloskar Brothers Ltd,Kirloskar Oil Engines 46%

As the above table demonstrates the equity values of such listed holding companies have been trading at significant discount to the aggregate intrinsic value of their equity investments. These discounts vary from 45% to 70%. The reason for this “illiquidity discount” is because the market senses that the probability of value-unlocking is low.

The minority shareholders are often the losers on account of such artificial suppression of shareholder value. Further in some cases the Promoters take advantage of this situation by increasing their stake in the company at these suppressed values. The obvious analogy to describe this situation from a minority shareholder perspective would be-“rubbing salt on an open wound”!!.The minority interest can only be sub-served by distribution of the underlying listed investments directly to the shareholders. Precedents exists for such value unwinding – Kirloskar Brothers Investments (KBIL) was trading at a discount of 78% to its intrinsic value in May 2014. KBIL announced a reorganization through which it planned to distribute its holdings in Kirloskar Oil Engines Ltd (KOEL) to its shareholders. By Feb 2015 the value gap had shrunk to 16%.

To replicate the KBIL value unwinding approach in other companies is definitely possible but the management/promoters should be encouraged / urged significantly in lieu of an inherent conflict between promoters and other shareholders. Considering the blatant unfairness of the prevailing situation & the stakes being high it would be worthwhile for a determined group of shareholders (even if a minority) to actively and vocally lobby the management for the desired outcome. The current period would be the most appropriate time to implement this strategy as the AGM season commences from next month onwards. The revised Companies Act provides minority shareholders with credible options to pressurise management. Some of these would include:

a) 1000 small shareholders (whose nominal value of shareholding is Rs 20,000/- or less) or 10% of the total small shareholders whichever being lower can propose a director on the Board (Section 151 of the Companies Act, 2013).
b) Shareholders representing 1/10th of the paid-up capital can demand that their resolution be included in the agenda of the AGM (Section 111 of the Companies Act, 2013).



Good topic for discussion, as there is immense potential for windfall gains in majority of cases, provided the minority shareholders are in it for long term, sometimes even as long as 10-15 years. But the wait can be worthwhile. Can anyone kindly publish the holding company and subsidiary company details, for all major business groups in India, if they have it please?

1 Like

According to the post, we can have near time gains too with collective action. Bringing pressure on the promoters to unlock the inherent value in these companies will lead to immediate re-rating of the shares. We have seen that happening in case of Kirloskar Brothers Investments wherein the discount came down from
some 78% to 17%.

1 Like

VR.pdf (77.5 KB)
Sharing pages from a Valueresearch publication.


I have attached my analysis on Holding Companies.Holding company Analysis.xlsx (101.4 KB)


This is very interesting Topic.
Thanks sambandham82 and Divyansh for the attachment. Thanks Sivakumar initiatiating this thread.

Well, i had invested in Bajaj Holding, with the same logic at that time it was trading at around 900 RS, and was dirt cheap . Same logic can be now applied on vardhman holdings too. Currently its trading at lower P/E multiples , that gives me considerable margin of safety.

1 Like

Recently, there is a significant rally in all the holding companies. Is anyone tracking Bengal Assam & Co.?

Interesting topic.
I am a newbie and recently came to know about amalgamation of Kajaria Securities Pvt. Ltd - parent company (KSCL) and Kajaria Ceramics Ltd - operating company (KCL) <- Maybe, this is the same as unlocking the potential of holding companies!
Based on recent notification, (coping from notice document) One fully paid equity share of KCL to be issued and allocated to the shareholders of KSPL in proportion of their respective shareholding in KSPL for every fully paid up equity share …In this, all the promoters of KCL hold 100% shares of KSCL.

Now, need to know what made them for this amalgamation ?

Given that AGM season is about to start, we are forming a group of investors to bring pressure on the managements to take necessary steps in unlocking shareholder value. As mentioned in the above blog link, one needs the signatures of 1000 ‘small shareholders’ to be able to nominate someone onto the board of a company. We will take the lead in handling the paper work involved. All we need is support from the shareholders as and when we approach the AGMs. Let us start with one company and see how it goes. Request interested forum members to send a mail to the email mentioned in the blog.


Just curious to understand the NEED of HOLDING companies and why such a structure is created? Any thoughts on this are most welcome…

I am not sure but I think holding companies are created to get more equity by creating a new entity with good fundamentals like P/E, low debt, high promoter holding, etc. This fools new and gullible investors like me to invest in them foolishly :persevere:

PS: I foolishly invested in vardhman holding looking at its excellent fundamentals but am now worried if I have made a good decision

excellent …holding company Analysis., i am tracking Tata Investment

Good analysis, @ sambandham82. I am tracking B&A from INR 480 onwards where I have also entered. It’s BV and EPS had increased significantly. Currently it’s EPS Rs 382 which is 36% higher than it’s previous year EPS.

I think there is a cyclical nature of discount widening and contraction during bearish and bullish phase respectively, especially in case of midcaps. Gains from holding company is not predictable like that from core company and hence slower accumulation and weightage in PF are crucial while investing in holding Cos.

For eg, Tata Investment corp’s discount before 2008 crash was 35-40% but after crash in 2008, valuation discount widened to 60-65% and maintained it till Aug-2016. But in the past 1 year, again discount shrinked to 35%. Holds good for B&A, BBTC, Maharastra scooters, Alembic, Vindhya telelinks, etc.,

1 Like

Can anybody throw some light on Vardhman Holdings?
This also looks to be an interesting story.

One interesting story developing on holding co front is binani industries . Binani industries holds 98% shareholding of binani cement . Binani cement is in NCLT for debt default . Binani industries had bought back 28% from market in the past in order to delist binani cement when they were making profits around 2011/12 . Now approx loan on binani cement is 3500 crores and it has 11.2 mtpa existing cement capacity and also ownership of some limestone deposits . 15 companies including piramal,grasim ,ultra tech and other foreign cos have already bid for binani cement
. Binani industries mcap is just 440 crs at present cmp. I would request the foeum members to dig deep on the balance sheet of binani ind and binani cement and what valuation shall binani cement fetch for its cement capacity and how can it change the fortunes of binani ind.

1 Like

Rajapalayam mills which holds roughly 4cr shares of Ramco cement and 80 lacs shares of Ramco industries could be valued at Rs.3500 cr and current year conso. EPS Rs.196 and the book valued is Rs.2000
Does this stocks gets its value unlocking for small share holders?

1 Like

HDFC Ltd can be looked as good case for holding multiple finance related businesses. Values of their subsidiaries (in bracket, the stake which HDFC holds, based on last closing price):

HDFC Bank (20.93%) = 20.93% x 533009 = 111558.78
HDFC Standard Life (51.62%) = 51.62% x 72460 = 37403.85
HDFC AMC (52.92%) = 52.92% x 28694 = 15184.86
HDFC Ergo (50.48%) = 50.48% x 12111 = 6113.63 (valued at a P/E of 30)
Gruh Finance (57.93%) = 57.93% x 20159 = 11678.11

You add all these and you get 181939.23. Subtract this from the market cap of HDFC & you are left with 110386.77. This means their core business trades at < 2 BV.

Looks really undervalued. What are your views on this?

If a holding company sells their shares and distributes the money, they will be able to dustribute only 70pc after deducting taxes

So atleast they should have a discount of 30pc

Transaction related costs are likely to be 1-2pc
Selling in bulk other than via a deal or buy back will take off a few percentages

Holding companies’ income is dividends and they have a cost of personnel like salaries, if they sell all shares today and distribute proceeds to shareholders I think that’s another 2 months of admin expenses plus company closing expenses plus closing audit expenses

When you factor all those costs it has to have around 40-50pc discount
I think tax itself is around 33pc