Tata Motors - DVR

Stock Opportunities
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Much has been written about Tata motors, the company, and there’s really not much I can add to that.

Specifically though, I wanted to start a thread about the DVR (Differential Voting Rights) shares. Tata Motors DVR shares were brought out by Tata Sons to raise money during dire times without diluting their voting stake, because these have significantly less voting power. This practice is common in developed markets e.g. US where shares of different classes are common. In fact it would be hard to find huge companies which do not have shares of different classes.

To compensate for the voting rights (or lack thereof) these shares pay an additional 5% dividend as compared to regular shares. So if a regular shareholder gets Re 1 dividend, a shareholder of DVR will get Rs 1.05

However, Tata Motors DVR shares are languishing, to say the least. As of today (Mar 24 2015) the valuation difference is a staggering 40%+. In the west a valuation difference of 5-10% is common but almost never beyond that.

Some triggers could be:

1). BSE has announced that it will include tata motors dvr shares in it’s indices (and other few DVRs also)

2). IF NSE follows suit, people will certainly wake up to the DVRs.

But purely from a valuation perspective the DVR trade at approx EV/EBITDA of slightly more than 3 and with commodity prices (steel) coming down it looks like the downside is limited. AT CMP the dividend yield is nearly 0.7% (honestly if I were running the company, I’d stop paying dividends and repay my debt instead, but hey, who’s asking me anyway :stuck_out_tongue: )

Nobody knows if/when the DVR price will converge and it may never converge (markets can remain irrational far longer than you can remain solvent), but the downside definitely looks limited at CMP of nearly 312.

Thoughts, specifically on the DVR?

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Another couple of things :

At CMP of nearly 312, assuming BV of 242 (source: screener), the P/BV is just 1.28. Compared to say Mahindra & Mahindra (P/BV=3) or Ashok Leyland (P/BV=5) this is certainly cheap.

And also: I’m long, though from higher levels and looking to opportunistically average down, so consider my views biased.

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The fortunes to DVR are linked to tata motors performance, which in turn is linked to JLR performance. I hold this stock for about a year and half now and have been eagerly awaiting the launch of the XE and commissioning of the china factory. Launch of discovery sport is also going to bring that x factor. I think both these factors could be potential game changers for the company.

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I am surprised how little chatter there has been about this news. Potentially , this will lead to a multi year bull run for HCV sector.

Or am i missing something?

Discl : no position but watching developments

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Wonder why sill TATAMOTOR DVR should trail behind TATAMOTORS by such a huge margin of 36%. By sheer virtue of this margin, can we assume that Margin of safety in buying TATAMOTORS DVR is 36% vis-a-vis buying the main tatamotors scrip and on one fine day this margin shall narrow to say less than 10% . Any way , for a small investor like me, voting rights doesn’t matter . Isn’t ?. Moreover, TATA groups are highly ethical.

Solicit views from the forum.

Discl. : Entered today at market levels.

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Tata Motors roaring ahead. Sep Sales very promising.

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/019D2C24_A7D3_4DF4_8493_49CECB886A2B_093109.pdf

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Yup. Its completely irrational.
A potential spin off of TML Finance or Tata Technologies might straighten out the irrational discount.

Today’s shakeup at Samsung by Elliott Management ought to affect their differential shares in Korea. Similarly, any form of activism in India holds great promise. I had thought that the inclusion in the Nifty would help out, but somehow hasnt yet.

Furthermore, the implied M Cap of TML DVR is 340*360 = 1.22 L Cr
Very odd when you compare it to JLR’s FY14-FY16 PAT of GBP 2 B, 2.03 B and 1.4 B odd respectively (20k Cr, 20k Cr, and 13k Cr) and its constant global growth.
9m FY16 sales volume growth of 14% at JLR alone.

So, this isnt a net net bargain , but is actually a growing enterprise.
One of the very few truly global brands owned by an Indian company.

  • the largest CV maker in India - whose performance is skewed towards a LHCV revival in the market
  • a very ordinary PV business (at a trough but with a strong pipeline) and a renewed focus towards making it a more global PV maker
  • a new CEO from Airbus
  • one of RJ’s biggest personal holdings.
  • the GBP depreciation is potentially a big benefit to the company (since its a net exporter of premium priced products)
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Tata Motors aim to be no 3 in Indian car market by 2019.

A new Land Rover Discover model is due this summer, and Jaguar will soon begin releasing more details on its first electric vehicle, the I-PACE SUV, due in 2018. Tata also has recently unveiled a new line of light pickup trucks and HEXA SUV for India.

Disc: Invested.

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http://www.businesstoday.in/sectors/auto/jlr-unveils-ratan-tata-passion-project-range-rover-velar/story/247263.html

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Tata Motors result declared

Consolidated Net Revenue Q4 FY 17 ₹77,272 crores, Consolidated PAT ₹4,336 crores
Consolidated Net Revenue FY 17 ₹269,850 crores, Consolidated PAT ₹7,557 crores

Consolidated Financial Results for the Quarter and Year ended March 31, 2017 – As per Ind-AS

For the quarter ended March 31, 2017, Tata Motors reported consolidated revenues (net of excise) of ₹77,272 crores as against ₹79,549 crores for the corresponding quarter last year. Consolidated revenues for the quarter are lower by ₹ 9,032 crores due to translation impact from GBP to INR. Consolidated Profit before tax for the quarter was ₹5,166 crores, against ₹5,888 crores for the corresponding quarter last year. This broadly reflects:-

In Jaguar Land Rover business-

1. Strong retail sales, up 13.0% y-o-y on continued strong demand for the product, revenue (in £) up 10.1% y-o-y ;
2. Higher wholesale volumes partially offset by overall higher marketing expenses and higher depreciation and amortization.

In Standalone business-

1. De-growth in the M&HCV segment and LCV segment partially offset by growth in Passenger vehicle segment.

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Describes possible revamp in entire Tata group and talks about Tata motors as well. A good read and thought to use this thread. Disc: 2% investment with Tata motors DVR

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Tata Motors to consider raising Rs 1,000 crore via NCDs next week.
http://www.moneycontrol.com/news/business/companies/tata-motors-to-consider-raising-rs-1000-crore-via-ncds-next-week-2332805.html

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Tata motors DVR is still languishing its parent company by 40%+.
Though the future of Tata motors depend on the turnaround of its laggard performance.
Can it still come back from the shadows?

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TATA MOTORS DVR shares are definitely undervalued but given a 5 year time horizon i dont feel the company itself can hit homeruns. The industry is soon to see rapid consolidation and i doubt this company has will make it through.
Disc. not invested

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I noticed that Tata Motors-DVR shares underperformed Tata Motors shares for quite some time. For eg: from April 1st to till date Tata Motors went down 7.8% where as DVR went down the double, more than 15%. Why do think this disparity ? Is there any hope this to move in tandem as the only difference is expected to be voting rights ?
Or does it mean, DVR would go down faster in a down trend and go up faster in an up trend ? Or is it just because many don’t know much about DVR or any other reasons behind it?

Disc: Have a 2+% in PF and wondering if it is better to exit at loss or to wait for long to protect the capital.