Tata Investment Corporation: Unusual discount to NAV

Stock Opportunities
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Some takeaways from the AR:

  1. Non Tata portfolio continues to be pruned. From 60 odd stocks at end March 31st 2020, they hold about 40 odd stocks - 20 low allocation stocks sold/profits booked.

  2. During the year, about Rs 210 cr worth of profits booked on their portfolio. Accounting treatment is via OCI and not via income in P&L.

  3. Derivative losses from covered calls at about Rs 11 cr.

  4. Their top non Tata holding is now Indusind Bank. They participated in a pref issue by Indusind Bank last year during wave 1 of Covid @ Rs 525 per share for a value of Rs 300 cr. Though the value of their investment has nearly doubled, I can’t say this excites me when there are far better investments in the market.

  5. Dividend of Rs 24 is a significant jump from last year’s Rs 18 and based on my assessment of their income for 2021-2022 (dividends, interest etc), this is likely to be maintained or at best increase marginally as Tata group stock pay better dividends going forward thanks to better operating performances.

  6. Listed equity portfolio maintains the 80:20 split between Tata and non Tata stocks.

  7. Tata stock portfolio has done very well this past year and as of March 31st 2021, contributes 67% of the NAV value v/s 60% as of March 2020. Rest 33% comes from non Tata stocks, debt funds, unlisted stocks at fair value etc.

  8. Based on above, clear that non Tata portfolio didn’t do as well in the past year. Increases the case for moving all non Tata holdings into ETF’s. Simple, ensures at least market performance and low cost.

  9. Notable unlisted portfolio includes NSE, small shareholding in Tata Capital, 32% in Tata AMC and of course 25% in the plantation business (tea estates via Amalgamated Plantations). Other interesting holdings are Tata Industries, Tata Autocomp and Voltbek Home Appliances.

  10. TIC incurs a total cost of Rs 20 cr annually to run a portfolio of Rs 15-16,000 cr. That’s just over 0.1%, beats every single MF and is as cheap as an ETF.

If only management and the Board was proactive, they can bring down the discount to 10-20% of NAV, like it is globally on holding companies. Tata is the flavour of the season and there are many investors looking to add a basket of Tata stocks - TIC fits the bill perfectly for such investors and is available at a 65% discount v/s buying those stocks (Titan, Tata Consumer, Trent, Voltas, Tata Chem, Tisco et al) directly + a 2% dividend yield.

We have to keep engaging with management as well as the Board. Hope shareholders will raise this with the Board at the upcoming AGM.

Top 10 Non Tata holding:

Indusind Bank
HDFC Bank
ICICI Bank
Pidilite
Asian Paints
Infosys
Sun Pharma
Reliance Industries
Nestle
Axis Bank

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