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    Why is Tata Motors DVR rallying

    Synopsis

    The promoter Tata Sons acquired over half a crore shares at the DVR counter through open market on September 4 representing 1 per cent of its equity at an average price Rs 56 per share aggregating to Rs 29.7 crore, according to the NSE bulk deal filings.

    Agencies
    Investors find DVRs as a cheaper way to play the rebound in the JLR and domestic commercial vehicles.

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    ET INTELLIGENCE GROUP: Tata Motors DVR (differential voting rights) stock gained 10.5 per cent on Monday taking the total gain in a month to 51 per cent compared with the 26 per cent gain in the company's common stock. The DVR stock's discount to the common stock touched a record high 66 per cent at the beginning of August. This prompted the promoter group to increase its stake in DVR shares which in turn attracted investors to the counter.

    The promoter Tata Sons acquired over half a crore shares at the DVR counter through open market on September 4 representing 1 per cent of its equity at an average price Rs 56 per share aggregating to Rs 29.7 crore, according to the NSE bulk deal filings. Tata Sons held 5.4 per cent stake in Tata Motors DVR at the end of June 2020 compared with just 0.1 per cent stake in December 2019.

    Tata Motors’ DVR has 10 per cent voting right compared with its common stock. Its DVR currently trades at 58 per cent discount to the common stock compared with the 43 per cent discount on average over the past decade. In developed markets such as the US, the DVR discount is around 3-5 per cent. Traders usually ascribe a discount to the DVR due to lower liquidity and voting rights.
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    The discount of Tata Motors’ DVR was around 20 per cent in January 2016. Since then, it has been consistently rising following the company’s burgeoning debt and pressure on the domestic and overseas revenues. Its UK subsidiary JLR focuses on the global premium car market. At the end of the June 2020 quarter, Tata Motors had net automotive debt of Rs 67,800 crore (including leases), compared with Rs 48,300 crore in FY20, according to the company's presentation. The company posted net loss in six of the past 10 quarters.

    However, the company’s aggressive debt reduction plan, concerted focus on cash conservation, and gradual recovery in the global premium car market has once again attracted investors attention.

    Investors find DVRs as a cheaper way to play the rebound in the JLR and domestic commercial vehicles. The delivery of Tata Motors’ DVR rose to 44 per cent on September 4 compared with the three-month average of 33.9 per cent.
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