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BL Research Bureau

The open offer by Tata Sons to mop up 28.4 per cent of the public shareholding in Tata Investment Corporation – an investment arm of the Tata group, may deliver a significant and sustained boost to the stock price of the company.

For one, the open offer, at Rs 600 is at a significant premium to the current market price of the stock (Rs 540 at Monday’s close).

Unlike other open offers, a large proportion of investors who hold the stock may also be in a position to exit their holdings through the open offer, as the acceptance ratio (the numbers of shares accepted by the company out of those tendered) is likely to be high.

As Tata Investment Corp’s public shareholding stands at 39.4 per cent, nearly seven out of every 10 shares held by the public may be bought through the offer.

Second, even at a price of Rs 600, the stock would trade at a reasonable valuation.

At the current market price, the stock trades at a multiple of about 10 times its 2006-07 earnings.

Moreover, the company’s investment book, which carries stakes in key Tata group companies such as Tata Chemicals, Rallis, Tata Motors and Indian Hotels (apart from a host of other stocks outside the group), could in itself support a higher stock price.

The value of the company’s March 2007 investment book would stand at about Rs 650 per share, reckoned at current market prices.

These factors may ensure that the stock does not witness a significant reversal once the open offer is through.

More Stories on : Stocks | Stock Markets | Financial Services | Open Offers

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