Would you like to buy 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? Get hold of the stock of Tata Investment Corporation (TIC), the listed investment arm of the Tata group.

The company owns minority stakes in several Tata and non-group companies. Yet, the TIC stock today languishes at about ₹390, while its underlying investments are worth over ₹800 per share. Though 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. There are three possible triggers that could unlock value for investors. One, the companies it owns enjoy good prospects and can deliver further stock price gains through better earnings performance.

For instance, TIC’s top holdings — Tata Motors, Tata Chemicals, Titan Industries and Tata Global Beverages — together account for half of its investment book. Each of these stocks is rated a ‘buy’ by most analysts — Tata Motors owing to stellar performance by its global arm Jaguar Land Rover; Tata Chemicals due to cheap valuations and improving US soda ash prospects; Titan as a play on the possible rebound in jewellery demand; and Tata Global Beverages for the good prospects of its tea business.

TIC also owns stakes in listed blue-chips such as Sun Pharma, Reliance, M&M and HDFC Bank and unlisted ones such as Tata Sons and National Stock Exchange.

High dividends

Improving profit performance from its portfolio companies can lift the dividend and interest income that TIC earns. Excluding the gains from trading on its portfolio, TIC has seen a steady 14 per cent annual growth in its annual interest and dividend receipts over the last four years. A stable income stream allows TIC to pay out generous annual dividends. Even if dividends are maintained at last year’s levels of ₹16/share, they amount to an over 4 per cent yield on the stock. There is room for this dividend to rise further as the company distributes just half of its annual profits as dividends.

Finally, over the medium term, there is the possibility that the Tata group will consider delisting the stock. After steadily hiking its stake over the last five years, through subscription to warrants, the Tatas own 73 per cent of the equity, just short of the statutory limit of 75 per cent.

The stock’s steep discount to its intrinsic value offers an attractive investment opportunity both for institutional investors and for the firm’s promoters. Should they peg up their stake, investors should see the stock price bridging the gap with the market value of its investment book.

(This article was published on February 16, 2014)
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