Updated as per new AR FY22
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Hello all, just finished reading the entire thread. Summarising my thoughts and key points.
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A lot of people are focused on the discount to underlying value narrowing over the years. To me this is eerily similar to watching the share price of a stock you own go up and down. Market will decide the price and discount.
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The good thing is they have managed to grow NAV at 20 percent plus over the long run. If we can manage to invest only in periods of peak discount and simply wait, I would be happy with even a 14-15 percent share price return + dividends which the stock has given over the last 20 years.
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Maharashtra Scooters is a good example. Current discount to underlying value is above 80 percent. Despite the massive discount, the stock has been a 50 bagger over the last 20 years excluding dividends.
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My rationale is simple. I want to invest in Titan, Trent, Tata Consumer Products and Tata Elxsi, NSE on the fringes. These stocks trade at incredibly premium valuations and TIC is a proxy to all these companies + a few others.
Disclosure: Currently researching and looking to invest
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I had invested in TICL for first time in 2013 and have been playing on discount game for last 7 years … Buying when discount > 65% and selling when discount < 50% …
I hold nearly 8% of my equity portfolio in Tata Investment … The capital yield of 17% + 10% dividend yield ( on my cost price ) as compared to Nifty 12% in same period is excellent by any means .
Last 3 years NAV growth has been pretty good and they have broken several rules like selling overvalued tata shares to buy undervalued Non tata shares …
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Its been a very good tactful, relatively lesser risk investment for you. Do you check current NAV from their website or any other place?
That’s interesting, can you pls share these cases if you have like which tata shares they sold and which undervalued non-tata they bought instead? Thanks
They trimmed their stake in Tata Elxsi due to sky high valuations I guess, increased their stake in ITC. KEI and GAIL were fresh buys. They also bought a bunch of financials and AMCs. You can find all recent buys and sells in their annual report.
0065c1cb-f7c7-45b0-b652-9a891076dfaf.pdf (2.8 MB)
Did anybody attend the AGM? Would be great if somebody can post a summary. Thanks!
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Buying when discount > 65% and selling when discount < 50%
How do you track this?
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I have made an excel sheet wherein using google finance function the latest prices of listed shares are updated and that gives me latest NAV . For unlisted shares I take last March valuation as per TICL annual report . This NAV I have seen has 99.5% accuracy when I match with TICL quarterly results …
by the way @Piyush_Vats has also made a similar sheet . You can use the same …
I attended AGM …Nothing specific … I raised some queries
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Sales of Tata shares : Mr Dalal agreed that they have sold Tata Elxsi share ( actually Noel Tata appeared to be surprised that Tata share was sold - that was my concern )
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High dividend payout : I raised issue why dividend was raised when investment opportunities are higher and company’s own share is quoting at huge discount ( so buyback could have been better) … No specific answer , expect that they had done buyback recently and may look at it again in coming years
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On diversifying into international equity … They said they want to focus on Indian market
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My issue is that everyone looks at discount to NAV only from discount %age perspective. The discount gap can close from both sides - Price rising towards NAV but wat abt the other case - NAV shrinking towards Price. Wat if the underying holdings were overvalued and start correcting - the discount might shrink but the price will either stay same or fall.
How do long term investors counter this issue?
Disclosure :- Not Invested
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Very pertinent question. I have personally dealt with this by assigning approx fair value as I perceive, to the underlying companies and not market value. For TIC it is difficult as there are two many holdings but applying this logic to largest holdings can take of extreme aberrations.
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This is a very important questions without any universal solution. I have written two articles about this on my blog (link via my profile. I guess they take down links posted on posts.) titled “The Holding Company Illusion” and “How Do You Value An Envelope With Cash In The Stock Market?” that outlines my thinking and approach and a solution that works for me.
Edit: by ‘universal’ I mean in the absolute sense with regard to Mr. Market (i.e. a right answer) and not one that is applicable to everybody universally.
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There can be many reasons for a holding company to trade at discounts, to understand this I had studied many holding companies listed in India.
Bajaj Holdings, Maharashtra Shooters, Balmer Lawrie & Co., PTL Enterprises even some big conglomerate which may also be called as holding companies like Grasim, M&M, HDFC, L&T, Info Edge, Aditya Birla Capital, Adani Enterprises etc. to name a few.
Some of thing which I noticed were –
- Most of holding companies invest in their subsidiaries, or few companies where promoter want a controlling stake.
- Promoters use holding company as a financial arm to save their gruesome businesses (by taking debt on holding company and subscribing for warrants of subsidiary at a premium, or giving loan to subsidiary at very low interest and sometimes write off these loans and book a loss.)
- Sometime greedy promoters use holding company for their benefits (swapping of shares – where promoters get rid of their loss-making business at premium or acquire a profitable business at a discount)
- Instead of rewarding shareholders holding company diworsify funds whenever it comes (whenever there is stake sale where cash comes it gets utilised somewhere)
- Generally Institutional investors are not interested in a holding company (they generally prefer underlying business because they want a controlling stake, its too difficult to track so many businesses.)
As a retail investor we can’t take controlling stake in underlying business, nor our votes count much, so we can take some advantage. As a long term investor, we should study underlying businesses as well as other investments to judge tru value of a holding company.
- Underlying businesses should be growing businesses (underlying businesses should survive and grow.) & should be well diversified.
- Good corporate governance in both holding company and underlying businesses. (Minority shareholders should be taken care of.)
- Preferably very low debt in holding company.
- No un-nessesary di-worsification.
- Holding assets value should be trackable. (at least financial reports of underlying businesses should be available so we can judge the value of its holdings.)
Some of the points I noticed in TIC are-
- Its holdings are very well diversified and have very good and strong businesses.
- Almost all businesses TIC hold is rated very well by rating agencies.
- TIC always shared profits with its shareholders.
- TIC is debt free and cash rich.
- Most of the businesses are listed so we can track it very well.
- TIC has able to grow its assets at good rate in past. (Though in future we can’t say it will or not)
When we look at some holding companies in countries like US they generally do not trade at such discounts, and even some companies like Berkshire Hathaway, Alphabet, etc. almost always trade at premium to their underlying assets. By knowing this we can’t say that holding companies in India will narrow their discounts in future. So we shouldn’t hope for price appreciation of a holding company even if underlying value increases.
In case of TIC, historically they had given good dividends, so in future if the underlying businesses grow well and they increase their dividends we can hope for good dividends in future.
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Totally agree will all the points. There is no point of investing in holding companies which do not share the profits with minority investors.
I have studied most of the holding companies and I did like the following ones:
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HDFC - great core business + holdings in HDFC life, HDFC asset management, HDFC bank + good dividends + great promoters
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M&M - great core business + holdings in Tech Mahindra and other Mahindra companies + good dividend track + great promoters
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Bajaj holdings and Maharashtra scooters - pure holding and investment companies + holdings in Bajaj companies + good dividends + great promoters
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Tata investment - pure holding and investment company of Tata group + best dividends + great promoters
Don’t like L&T because their core business is not quite good. Corporate governance issues with Adani and Aditya birla group.
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can you provide details of what are their specific holdings in other M&M group companies? I will delete this post later. Thanks
Can you share the source, as I doubt listed M&M has all these. Listed M&M is pure automotive, tractor & farm equipment as far as when I checked and could find out…
It’s available on screener.in
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Best source is M&M Annual Report. Pick up the latest one and check out the non-current investments Notes to get details of M&M shareholdings in these cos. In fact, you vl also unearth the ones which are not listed bt are certainly worth more than marked on the Balance Sheet. E.g - Firstcry investment
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Recent results
Hope it helps
dr.vikas