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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