Aarati Krishnan of BusinessLine has come up with the bright idea by which investors can get a stake of Tata Motors, Tata Chemicals, Titan Industries, Tata Global Beverages and a hundred other stocks of leading companies at less than half their current market price. She advices investors to buy shares of Tata Investment Corporation (“TIC”), the investment arm of the Tata group. TIC owns minority stakes in several Tata and non-group companies. Its market price is Rs. 390 while the underlying investments are worth over Rs. 800 per share.
Aarati Krishnan points out that while it is usual for holding companies to trade at a 25-30 per cent discount to the market value of their investments (or net asset value), the discount of 52 per cent on the TIC stock is exceptionally high, both in relation to peers and historic levels.
She explains that there are three possible triggers that could unlock value for investors.
One, its holdings (blue chips like Tata Motors, Tata Chemicals, Titan Industries, Tata Global Beverages, Sun Pharma, Reliance, M&M, HDFC Bank etc) are doing extremely well. Their stock prices are going up and it will result in TIC’s stock price going up as well.
Second, there is a good chance that the dividend yield (already at 4%) can go up as the underlying companies show good results.
Third, there is the possibility, Aarati Krishnan says, that the Tata group will consider delisting the stock.
Tata Investment Corp’s steep discount to its intrinsic value offers an attractive investment opportunity for investors, Aarati Krishnan adds.
Yeah, TIC is a good pick at the moment.
This is somewhat misleading. Pl. note that it is not uncommon for TI to trade at HEAVY discounts.
EOY 9-10 NAV was 1040. During 10-11, TI never traded above 600. That’s a discount of 40% or more thru the whole year.
EOY 10-11 NAV was 895. During 11-12, TI traded 421 between 536. Heavy discount.
EOY 11-12 onwards too, the picture is same.
What is being missed by the author is, the heavy discount has become a TREND, not an anomaly. There is no guarantee that the heavy discount to NAV will be bridged.
Thus the 1st trigger by Aarati Krishnan is refuted.
The 2nd trigger is vague and speculative. If you are talking about dividend yield, either the dividend must go up or price must go down. What makes you think that dividend will be raised just like that?
As for the 3rd trigger, delisting, forget it. Tata Group is very conservative and if they wanted to delist/liquidate this co., they would have done it years ago. For them, there is certain strategic/financial interests this listed co must be serving.
Disclosure: Not long and no plans to enter TI.
Very good points Sir
100% agreed with your viewpoints… TIC is holding investments for strategic purposes only and does not intent to sell them… Therefore, this stock may not be a good buy as there is not any value unlocking which is expected in this stock..