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 )
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?