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06 June 2009

THE BEST OF BOTH WORLDS : TATA INVESTMENT CORP

Whenever I am in a quandry about my investments I go to my brother, philosopher and guide. Though I was in one today with this investment, I did not seek him out. Reason? I can clearly hear him say - "Its like putting money in a savings account, earning interest, being safe and seeing some capital appreciation". Thanks bro!!

The Business
Tata Investment Corporation(TICL) is a non banking finance company NBFC promoted by Tata Sons. 

It deals mainly with investment in shares, debentures, and other securities. It also undertakes capital and related customer services and financing of long-term investments in equity shares. In this it has a stated aim of increasing its investments in Tata Group companies.

Located in Mumbai, the company has investments in both, registered and unregistered entities. Among unregistered entities, it has investment in preference shares of Tata Auto Components (TACO) and Tata Sons. TACO is one of the leading auto-component providers in India, while Tata Sons has its fingers in all Tata pies including the cash cow, TCS where it is the majority stakeholder. TICL alongwith Tata Sons promotes Tata Mutual Fund and is also a chief stakeholder in Tata Securities, which distributes mutual funds and other investment related securities. 

The Financials
Tata Investment Corporation was rated by CRISIL, the highest rating of 'FAAA' since 1994 indicating maximum security in payment of interest and principal amounts. This rating has been affirmed every year since then and proves its credibility as a long term investment. That's Investment Rationale No 1 - 'being safe'.

TICL's revenue comes from dividend income and profit gained by selling investments. It has a portfolio with a book value of Rs. 1030 crore against a market cap of Rs 1418 Cr at the CMP of Rs 411. 

The company declared net profits after tax of Rs 186 Cr or Rs 54 per share in FY 2008-09. It is a debt free company with a dividend yield of 3.66 %. The table shown below highlights it. This is the Investment Rationale No 2 - 'akin to a saving bank account'.
The Valuations
An investment company like TICL is best valued using book value and an estimate of the current value of the investments. Something akin to an NAV on the basis of the market values of listed investments and the book values of unlisted investments. The managements' estimate as on 31 Mar 008 works out to Rs 805 per share, based on market values of the listed investments and the fair values of the unlisted investments after deducting tax, up from the previous year's Rs 588. At Rs 805 per share the company can be valued at Rs 2774 Cr against a market cap of Rs 1723 Cr (then) and Rs 1418 Cr (now) a discount of over 35%. That's Investment Rationale No 3 - likely capital appreciation.

The Caveat
Well besides the standard caveats for investments, this one calls for the heavy artillery. If you have a long term  horizon, lots of patience, not given to looking up the value of your investments too frequently and are looking at safety of investment prior to appreciation  but  do not want to put your money away in fixed income securities(and see IT and inflation erode your returns) then this is the stock you are looking for.

11 comments:

income.portfolio said...

Puneet,

Good to know that your analysis (with different method) gives the same result. May be that's an indication that company is really good.

Best Wishes,

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vikrant upadhyay said...

Hi Puneet,
Good Post.
Dont you give fair price to buy stock in your analysis?

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