Is Tata Motors being seen as takeover target by investors and whether one should buy?

Recently, you would have come across some news on the subject. Main reason for speculation is the significant difference that currently exists between two classes of shares of Tata Motors.

  1. Normal Tata Motor Shares – current trading at Rs 111/ per share
  2. DVR Tata Motor Shares – currently trading at Rs 50.50/ share

The main difference between the two classes is only voting rights. The normal ones are with voting rights and the DVR (Differential Voting Rights) without.

Normal shares are trading at a premium of 120% over DVR

As per experts and observers, such significant premium exists for voting shares when the general market consensus is that the subject company is potential target for takeover and there would be fight for control between potential suitors – hence shares with voting rights would have an underlying premium.

  • Whether the subject theory makes sense – maybe yes… Besides, looking at its performance over the years – very possible –  given the significant drag it has been on the Tata group. Also the technology evolution in auto industry in general is pointing towards a continued uncertainty.
  • Whether one should hence acquire shares at premium – I will strongly suggest NO….

Reason – I hate these kind of highly subjective news/ observations driven buying/ investments. What I am more bothered about is whether fundamentally business makes sense…

Fundamentally, I have never bought into Tata Motors due to the following two reasons –

  1. I have always believed – in case of Tata Motors, contrary to popular belief, the biggest problem has been the brand ‘Tata’. Over the years, the Company has launched some very interesting products but achieved little success. I have seen people getting excited with the product but somehow not being able to push themselves to buy it. It’s unfortunate but true.
  2. The other reason – Company is focused on too many segments – Commercial Vehicles, Passenger Cars, Super Luxury, Mass and too diversified geographical markets – almost every major country. Both these lead to too many variables for Company to control. Diversification is important for hedging but too much works the other way.

I continue to watch developments closely but will not dare to enter into the stock anytime soon.

Disclaimer: The above are my personal opinions and the reader should do his own research before taking any investment decision.

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About the author

Nitin Jain

A finance professional with around 20 years of investing experience in Indian markets both on buy and sell side, equity and debt, private and public with some of the best organizations globally including Goldman Sachs, ICICI Group, ICRA and others. He is a All India Silver Medalist CA by qualification.

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Jatin Vora
Jatin Vora
1 year ago

Nice and Crisp article Sir. Thanks for the same.

Prashanth B
Prashanth B
1 year ago

I dont have the capacity to analyse fundamentally but Technically I think it is giving a buy signal. Too much volume is building up in quarterly charts. But it remains to be seen if they are able to turn around JLR and sell more of its Indian cars. Off late its building better cars at competitive price. I feel like its auto business will turn to black from red sometime in future.
But as you said they have their hand in too many pies.

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