TATA Investments available at 50%+ discount to its NAV!! Should you buy?

Tata Investment Corporation Ltd (TICL) is an interesting company. I have personally liked this company for its simplicity and its dividend payouts. And having a Tata brand attached to it does not hurt anyone. 🙂 This company can be one of those so-called safe businesses, when bought at a good price.

tata investment corporation logo

The business in itself is pretty straight forward. It invests primarily in equity shares, just like any mutual fund. But it does not collect money from investors. It uses its own money for investing.

The Company’s investment philosophy is to “invest predominantly on a long-term basis in (industrial) companies that are well-managed and offer potential for high dividend yield as well as high growth and whose stock may be trading at a discount to its underlying intrinsic value.

The underlined text in company’s investment philosophy is what attracts me to this business. I have always been an advocate of companies which pay decent dividends, even though it may mean that these companies lack better investment opportunities. This is because when investing for decades and not just years, it’s wiser to stick with stable, rock solid dividend paying companies for core portfolio. This helps in generating an ever increasing stream of dividends and provides additional money to fund acquisition of growth stocks.

Now, if we go by the book value of TICL, it has shown a decent (but not continuously increasing) trend. It has climbed up from Rs 150 in 2003 to above Rs 350 in 2013.

tata investment corporation book value per share
TICL Book Value Per Share (2003-2013)

In the meantime, and as already mentioned, the company has been generous to its investors and has doled our liberal dividends year after year. The graph below shows the stability in dividends paid by the company.

tata investment corporation dividend payout
TICL Dividends (2007-2013)

And with recent market correction, the stock is trading at a mouth watering dividend yield of more than 4.5%. For me, this is a very exciting number. But same may not be the case with you. This may not seem like a very big number to you. But assuming you are a long term investor who can hold the stock for many years, the dividends under normal circumstances would continue to increase. This in turn would increase the yearly yield on cost basis. So even if we just look at this stock from dividend income perspective alone, the stock deserves to be accumulated at current levels.

Another interesting way to check stock valuation for this company is to compare the stock NAV with its current market price. This NAV as explained on company’s site, is a measure of market value of all investments made by the company. This is similar to a mutual fund’s NAV. If you see the graph below, it’s clear that market price has always traded at a discount to company’s quarterly disclosed NAV. This is not a strange phenomenon as holding companies (like TICL) tend to trade at a discount to the market value of their investments.

tata investments stock price discount NAV
Stock Price has always been less than company’s (investment) NAVs

But important point to note is given in the next graph. The red straight line is the average discount at which the stock has traded to its NAV. This is close to 38%. But with recent fall in share prices, the discount has widened to around 55%. 

tata investments stock price discount with NAV percentage
Discount to company’s NAV has risen in recent times (Check Right part of chart)

Now, TCIL has traded at such steep discounts only in the crisis of early 2009. Such deep discount to NAV demands that this business be given a serious thought when buying stocks for long term portfolio. 

Risk – Before you go ahead and buy this stock, please do remember that just like stock price, this NAV too is market dependent and fluctuates depending on market value of investments made by the company. For a detailed description of company’s investments, please go through the latest Annual Report here. For a quick glance of company’s financials, click here.


Disclosure – Long term positions in TICL.

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Written by Dev Ashish

Founder - Stable Investor Investing | Personal Finance | Financial Planning | Common Sense

9 comments

  1. One risk is the dilution of equity by promoters at the cost of minority shareholders in the form of warrants. This is a serious blow for slow growing company like TICL. Bajaj Holdings is 100 times better than this.

  2. Hey Jatin

    Sorry for not being able to live upto your expectations. But considering that TICL is more like a mutual fund rather than a simple business, its fundamentals depend on companies where it has chosen to invest its money. Or you can say that fundamentals here are a weighted average of fundamentals of all the companies where TICL has made investments.

    In this post, the intention was to gauge the valuations of the business when compared to historical averages. As far as fundamentals are concerned, they are pretty much decent as far as I can make out considering the companies which TICL has invested in.

  3. Which year Hemant?

    For last ten years, the EPS (DPS) figures are as follows –

    2013 – 30.34 (16)
    2012 – 29.33 (21)
    2011 – 41.17 (16)
    2010 – 40.20 (15)
    2009 – 54.06 (15)
    2008 – 53.93 (15)
    2007 – 52.71 (15)
    2006 – 47.34 (12)
    2005 – 48.91 (12)
    2004 – 35.06 (10)
    2003 – 19.95 (6)

    And yes, a company can declare a DPS greater than EPS.

    In fact, many well-known companies have paid dividends in years where they posted negative earnings per share! 🙂

    According to Investopedia, “when it comes to declaring and paying dividends, current earnings per share has nothing directly to do with whether a company is able to pay a dividend. Keep in mind that a company with a lower EPS than its DPS in a current year may be coming off of a string of more profitable (high EPS) years, from which it has set aside cash to pay future dividends.

  4. True. That is a risk which remains in such companies.
    When talking about Bajaj Holdings, its so called 'strategic investments' form a whopping 88% of its total investments (as of market prices in March end 2013). And where has it made its strategic investments? Bajaj group companies like BAL, BFH, BAHL, etc. So there is concentration risk attached to the company.

  5. But they have not diluted the equity and cash surplus. All in all, you buy Bajaj Auto,Bajaj Finance, Bajaj Electricals, ICICI Bank at a discount and they also invest in other companies. Tata's are afraid of any takeovers and hence dilute equity in the form of warrants. Already it is a slow growing company and if dilution happens, it is not a good choice of stock for parking your money. BHIL is a better stock and it constantly invest and increase in blue chips of its group which are performing well. TICL has to keep investment in its companies even if there is no growth but only for maintaining its group's stake.

  6. Analysis of last 5 years data is not good enough. GDP has gone sub-5% levels and might half-out in the coming years. The period post 2009 was the best for company EPS. Tata Inv is a good company, but there is a lot more pain to come. The Indian Economy is doing very poorly.

  7. Agreed that 5 years is too less a data to take a call. But it helps in taking the first step towards knowing whether a company is grossly over-valued or not. And in this case, TICL does not seem to be overvalued. But this does not rule out the possibility of further price correction.

    Macro-economic issue(s) like poor GDP growth are definitely an issue. But these are uncontrollables. So its better to stick with companies which can survive these bad times. So, in that sense, this may be a good time to start accumulating shares of good companies like TICL. You can either get good news or good price in market. And if one is ready to stay invested for long term, these times of bad news are a good opportunity to start accumulating.
    🙂

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