I have been observing Maruti Suzuki india for the past few months And my observation led me to this micro blog post. Maruti was first touted as one of the best auto stocks to own with almost all institutions, brokerage houses and funds positive on it. The stock then saw some hiccups with yen trade, strike in Mannesar, car sale nos not being up to the mark, economic impact of high interest rates etc etc. Then came the rumour of a buy back or increase in parent holding followed by a denial. The stock then went into a huge controversy with unclear talks on a plant in gujarat and literally amassed confusion in every aspect. All this caused a huge oscillation in stock price with several downgrades and some hold recos.
the possibility of the company becoming a trading co or a finance co had a fair share of worries. So much so that it ignited the foreign institutional holders, domestic institutions, minority shareholders, press and then finally the independent directors on board to step in and join the critique. The role played by the independent directors is worth a lot of credit as it awakened the management to atleast consider a postal ballot seeking minority shareholder votes on the nuances of the gujarat plant and the future of maruti suzuki india limited.
There was another interesting thought at play before the forced move to consider minority shareholder interest. That lay in the timings of Maruti’s move given that a new companies Act is awaiting implementation and under which the provisions of detailed scrutiny, class actions, minority shareholder interest and liabilities on independent directors in governance at a higher level are to set in.
what followed was finally a vote on the move and a much defensive management.
By now, most of you must be wondering I’m off track. The title of the post said Tata Motors dvr and all the talk is on Maruti. Trust me, I’m not scribbling this being high, even though the markets graced enough reasons to be so. I shall restrict my cheers to the market to my month end post and portfolio update. But in MAruti’s actions and looking at the net share price movement on Maruti from 1400 odd to 1850 odd, I was tempted to some isolated thoughts. A little inspired by some analogy and a little by the legend, Mr. Amitabh Bachchan and his ” main aur meri tanhai, aksar yeh batein karte hain…..”
there there is a human tendency that one blunder usually makes one cautious. Even more so when it happens in close proximity either time wise or distance wise. Surely when it happens in the neighborhood.
Tata Motors is a much fancied stock in the markets these days. not only does it find a mention in top fii picks but even Recently, while upgrading india, the iconic Goldman Sachs has featured it in India’s best stock picks for 2014.
Tata Motors trades at some 385 odd while it’s own shadow, Tata motors dvr trades at a nearly 50 percent discount at 189 odd rs. The dvr has differential voting rights in fraction terms, although as a bait has a slightly higher dividend. Usually dvr globally trade at a discount of 25 to 30 percent though this dvr quotes at almost 50 pct discount. Some of this is understandable historically from the fact that it has been a new instrument to which many may not be familiar and secondly to do a bit with India’s overall image and the difficulty in doing business which necessitates a desire for more control.
However some key changes do not inspire this huge discount and I believe it is a matter of time that the discount narrows. The most obvious of these is the overall excellent governance of Tata group companies and the new leadership of mr Mistry who I doubt would scar the hard work and credibility built by the Tatas for decades.
But more importantly I believe MAruti’s incident will inspire Tata Motors not to make similar harsh and minority shareholder opposed moves. Not only will the precedent of the negative publicity of Maruti deter this, equally enforcing would be the worry of similar protest by fii, dii, minority shareholders in Tata motors limited, fractional voting in Tata dvr and the role of independent directors. Also the clock is moving towards the new companies act and that itself will impose some checks.
What does this mean? It means I had a discount on a dvr share for worry of no or lesser voting rights which is somewhat insured or mitigated by the above factors. Given this thought process, it seems, a bit overdone to have such a huge differential in the dvr discount to Tata motors share price.
If the discount is to normalize to 25 to 30 pct, the dvr could rally 20 pct just on this. If one factors in the general bullishness on Tata motors limited and the possibility of good returns in that stock itself, the dvr would appreciate even to maintain its benchmarking with Tata motors shares. Some downside protection is already in the discount and some comes from dividends.
Thus I would believe that it seems like a good opportunity to own the dvr shares.
Pleas be advised: the view expressed reflects my thoughts and reasoning and not an endorsement. Disclosure: invested and adding