Uploaded byTushar Gupta
Tatamtrdvr discount analysis and EMH
Tata Motors issued dividend-paying variety (DVR) shares to pay off debt, but they have traded at a high discount of around 49% compared to ordinary shares. While DVRs were intended to attract passive, long-term investors focused on dividends, the high discount suggests investor concerns about dilution, governance, and limited takeover rights for DVR holders. However, Tata Motors has few such issues to justify the discount. Increased holdings by passive institutions over time have also coincided with a wider discount, supporting the view that DVRs attract more passive investors who provide less liquidity and drive down prices. Measures like share buybacks or dividend increases are suggested to help narrow this unwarranted
Tatamtrdvr discount analysis and EMH
- 1. Efficient Market Hypothesis TATA Motors -Tushar Gupta
- 2. History of DVRs •Issued DVR to pay off debt • Starting price Rs 305/- • ~10% discount on ordinary shares
- 3. Discount Range • Averagediscount of 31% over a span of 3 yrs • More than 35% since Dec 2010 • Currently trading at 49% discount • No effect of splitting
- 4. Idea of DVR •Higher dividend + Low Price in lieu of rights • Instruments for passive investors • Investor interested more in dividend • Money blocked for long term • Is this nudge?
- 5. Another Theory • DVRsare small part of any takeover bid • A high price of DVR would seriously skew valuation
- 6. Discount Drivers • Dilutionfears • Corporate Governance Issues Since Tata Motors has • Lowering of Dividend none of these issues, it seems likely that the high discount is • Fear of Takeover unwarranted
- 7. Shareholding Pattern • Majorchunk held by Institutions • Increased from 50% in Sep-10 to 76% in Sep-11 • Discount increased from 29% to 44% in the same period • This is in sync with the passive investor theory Passive => Less Liquidity => Lower prices
- 8. 20% 40% 60% 0% -100% -80% -60% -40% -20% 1 16 31 46 61 76 91 106 121 136 151 166 181 196 211 226 241 256 271 286 301 316 331 346 361 376 391 406 421 436 451 466 481 496 511 526 541 556 571 586 601 616 631 646 661 Overall trend (as of 30/11/11) 676 691 Series1
- 9. 20% 40% 60% 0% -100% -80% -40% -20% -60% 1 16 31 46 61 76 91 106 121 136 151 166 181 196 TATA Motors 211 226 241 256 271 286 301 316 331 346 361 376 391 406 421 436 451 466 481 496 (as of 30/11/11) 511 526 541 556 571 586 Pantaloons Pantaloon vs TATA Motors 601 616 631 646 661 676 691 Series1 Series2
- 10. Comparison… • Similar marketcomparison between Pantaloon and TATAMTRDVR • Both show mostly similar trends • Spike in Pantaloon post 23/11 – FDI news • High probability of discount coming down Markets are semi-efficient in this case
- 11. Conclusion • No particularbad news • Split but no effect on price or discount • Passive institutional investments hurt prices Short TATAMOTORS and Buy TATAMTRDVR
- 12. Suggested measures forTATA Motors • Buy back DVRs • Exchange for Ordinary Shares • Increase DVR dividend