Tata Motors DVR discount makes it attractive, say analysts

Investors seeking exposure to Tata Motors can consider taking the differential voting rights route, given DVRs’ attractive discount to ordinary shares, say analysts.
 
Tata Motors DVR last week closed at Rs 248, half the price of ordinary shares, which finished at Rs 498 apiece. Tata Motors is among a handful of Indian companies to have their DVR shares listed separately.
 
For the uninitiated, DVRs carry lower voting rights (10 DVRs have voting rights of one ordinary share) but offer higher dividends (10-20 per cent extra to compensate for the lower voting rights). The current discount is in line with historical levels. But analysts believe there is a scope for it to narrow.
 
Host of good news and a strong business outlook can lead to multiple re-rating for the stock. The spread can again contract back to 35 per cent, said a note by Edelweiss Alternative Research. Shares of Tata Motors have soared 50 per cent, so far, this month, buoyed by the automaker’s decision to sell a 15 per cent stake in its electric-vehicle (EV) business to private equity major TPG and other investors. The infusion values Tata Motors' EV business at $9.1 billion.
 
The spread between ordinary shares and DVRs had narrowed to below 30 per cent, following the inclusion of Tata Motors DVR in the Nifty50 and Sensex. But as the DVRs were removed from the index, the spread widened once again.

“At the current spread, positional players who are bullish on the Tata Motors growth outlook can definitely look to accumulate DVR shares over ordinary shares. As the business growth gains momentum, DVR can outperform ordinary shares over the longer term,” added Edelweiss. But those taking the DVR route should be mindful that liquidity at the counter is low when compared with ordinary shares. Also,  DVRs have trading limits, while ordinary shares have no circuit filters as they are part of the Nifty index, and traded in the derivatives market.