Rakesh Jhunjunwala cuts exposure to TaMo's ordinary shares, ups DVR holding

Billionaire investor Rakesh Jhunjhunwala has pruned exposure to Tata Motors' ordinary shares, while increasing holdings in shares with Differential Voting Rights (DVR). Until last week, the DVRs were trading at a 50 per cent discount to ordinary shares. However, the gap between the two appears to be narrowing.

On Thursday, shares of Tata Motors traded at Rs 493, up 1.3 per cent over day’s close. The DVR on the other hand traded at Rs 246, up nearly 6 per cent.

Jhunjhunwala’s holding in Tata Motors' DVRs rose to 3.93 per cent during the September 2021 quarter from 1.97 per cent in the preceding quarter. On the other hand, his holdings fell slightly in Tata Motors' ordinary shares to 1.11 per cent from 1.14 per cent for the period under consideration.

Analysts expect the gap could narrow to 35 per cent. In other words, they expect DVRs to perform better vis-à-vis the ordinary shares.

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).

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.

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.

The DVRs, meanwhile, have gained only 34 per cent in the past month.

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.