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Accumulate Tata Investment Corp at current levels and add on dips for 30%-40% returns

Sanjay Chhabria | 03 Mar, 2017  | Follow Author | Add to my Favourites 
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Tata Investment Corporation(TIC) is an investment and holding company and operates like a close-ended mutual fund. TIC  invests in a diversified portfolio of quoted and unquoted securities of companies, including Tata Companies, which are engaged in various businesses with a history of strong operating and financial performance. The typical investment approach of the Company will be to seek a combination of value and growth. The Company believes that its investments provide a sustainable competitive advantage in volatile markets and would contribute to its dividend income as well as any profits that may be realized on sale of such investments. TIC may consider short-term opportunities where it may see prospects for attractive returns, but will primarily focus on a long-term value creation strategy rather than on any near-term impact on its revenues, profits or cash flows. TIC’s primary sources of income consist of dividend income and net profit on sale of investments. The Company also invests in units of mutual funds, bonds and venture capital funds. The 76 year old Tata Company, in which Tata Sons has a 73% equity stake, apparently does not necessarily have to look askance at the powers that be in Bombay House, where it is located, in defining its investment strategies.

The last five-six years have been a trying period for equity markets with the country clouded by news of scams, currency depreciation, high inflation and a steep fall in growth. A lower rate of inflation and interest rates pronounce a better macro environment going forward. Reflecting this sentiment the Sensex has shown a robust trend with the Sensex inching towards 29,000.  TIC continues to invest in Tata and non-Tata companies, both in the listed and unlisted categories, though investments in Tata companies generally constitute a larger proportion and are of a longer term and strategic nature. Its single biggest equity investment in book value terms, amongst the group companies, which is also its single biggest investment in any company, is in Tata Capital, a newcomer in the Tata Group's scheme of things. Apart from equities and mutual funds, the company invests a small portion of funds in debt securities.

The income of the Company constitutes a mix of dividend and interest income, supplemented by profit on sale of investments. The total income for the year ended March 2016 increased 8% to Rs 247.26 cr.. After considering the profit from sale of long term investments and the impact of tax thereof, the profit after tax for the year ended March 2016 stands at Rs. 202.61 cr. as against Rs. 185.86 cr. as on 31st March 2015. The company is rated FAAA by CRISIL, indicating maximum safety. TIC has been debt free for most of its existence, which shows a conservative style of working.. On a equity of 55.1 cr., (Promoters’ stake-73.02%, FII/DII stake-4.73%) the FY16 EPS stood at Rs 36.77 and the dividend declared was 170% (Rs 17 per share). For the nine months ended December 2016, the company posted net profit of 186.25 cr. on total income of 235.44 cr.. The EPS for nine months stood at Rs 33.80

The company owns minority stakes in several Tata and non-group companies. Yet, the TIC stock today languishes at about 590, while its underlying investments are worth 1340 per share. Though it is usual for holding companies to trade at a 25-30% discount to the market value of their investments (or net asset value), the discount of 56% on the TIC stock is exceptionally high, both in relation to peers and historic levels.

Investment in TIC stock, is taking exposure in various industries and sectors and in this respect it is very much like a close ended mutual fund. Therefore, for those who believe in the India growth story, this is perhaps the best stock to invest in. But since the value of its assets (primarily equities) depends on the stock market, this stock is sensitive to movements in the Indian indices. The company’s market cap is Rs 3,250 cr.. The company's December  2016 Net Asset Value (NAV)(pre-tax) per share was Rs 1340. At its current market price of Rs 591, the stock is trading at a 56% discount even to this NAV. This discount is likely to be wider today as the company's top holdings must have appreciated further from their December 2016 levels. Looking at the buoyancy in the markets from the last 2 months, the company's March 2017 Net Asset Value (NAV)(pre-tax) per share is expected to be more than Rs 1400.

The company also holds unquoted investments in Tata Asset Management and National Stock Exchange which may provide significant scope for value unlocking as they are captured at cost.  Moreover, it is quoting at a dividend yield of about 3%, which means that it offers some value even to conservative investors.The stock’s steep discount to its intrinsic value offers an attractive investment opportunity both for institutional investors and for the firm’s promoters. Finally, over the medium term, there is the possibility that the Tata group will consider delisting the stock. After steadily hiking its stake over the last seven years, through subscription to warrants, the Tatas own 73% of the equity, just short of the statutory limit of 75%.

Investors can start accumulating the Tata Investment Corp. Stock at current levels and add more on declines for decent returns of 30%-40% over the next 8-12 months.

Sanjay Chhabria is an equity analyst and investment consultant based at Raipur (Chhattisgarh). He is a registered Research Analyst as per SEBI (Research Analyst) Regulations, 2014 (Registration No. INH000001592). At the time of writing this, he doesn’t have any position in the stocks mentioned above. He welcomes comments, feedback & investor queries at [email protected] and at 9893200307

Sanjay chhabria is bringing a weekly Investment newsletter “Market-View” since April 2001 to help small(retail) investors take an informed investment decision. He invites Readers to send him email/Whatasapp message(9893200307) to get free 1 week trial offer of “Market –View”.

Under no circumstances does the information in this report represent a recommendation to buy or sell stocks. This report has been prepared solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments.


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About Sanjay Chhabria

Sanjay Chhabria is an equity analyst and investment consultant based at Raipur (Chhattisgarh). He brings out a weekly investment newsletter "Market-View" to help retail investors make informed investment decisions. He welcomes comments, feedback & investor queries at [email protected] and at 9893200307.

For more information please write in to [email protected]

Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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