Tata Motors DVR stock soars 10% after Rakesh Jhunjhunwala raises stake

Rakesh Jhunjhunwala pruned exposure to Tata Motors ordinary share, while increasing holdings in shares with differential voting rights (DVR).

The billionaire investor’s holding in Tata Motors DVR has risen to 3.93 per cent during the September 2021 quarter from 1.97 per cent in the preceding quarter. On the other hand, his holding has declined slightly in Tata Motors ordinary shares to 1.11 per cent to 1.14 per cent for the period under consideration.

Tata Motors DVR surged 10 per cent on Thursday to end at Rs 256. The ordinary shares rose 4.3 per cent to end at Rs 508.

Currently, the discount between the DVR and ordinary shares is 50 per cent—in line with historical average. Analysts expect this discount to narrow to 35 per cent levels.

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 Abhilash Pagaria, assistant vice-president, Edelweiss Alternative Research in a recent note.

Change in Jhunjhunwala’s holdings was seen as a further endorsement of this. Besides Jhunjhunwala, ICICI Prudential Mutual Fund has increased stake in Tata Motors to 17.35 per cent from 15.43 per cent at the end of June quarter.

Shares of Tata Motors have soared 64 per cent in the past one 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. After the latest move, the DVR has outperformed over a one-month period with 67 per cent surge.

The 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).

In 2015, 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,” Pagaria added.

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, as well as traded in the derivatives market.