In stock market terminology, Tata Investment Corporation is a 'representative' of the 'cats and dogs' of the stock markets. Not completely forgotten, but a borderline case nevertheless. A pity, since the company is not an underperformer by any yardstick-it is in reality an outperformer based on the performance of the benchmark indices over a similar time span. The 73 year old Tata Company, in which Tata Sons has a 70% equity stake, apparently does not necessarily have to look askance at the powers that be in Bombay House, where it is located, in defining its investment strategies. The total book value (or cost) of its investment portfolio in the equity/preference /debentures in India Inc at end March 2010 amounted to Rs 13.1 bn. Of this less than 14% was in 'group' companies or in 'related' companies. Such investments in group companies also accounted for close to 12% of the total 'market value' or 'net asset value' totaling Rs 36.4 bn at year end.
Pure play investment companies are not generally punted on by market clairvoyants. Besides, in such instances as Tata Investment Corporation, the underlying belief is that its primary goal is to shore up the 'housekeeping' of the incumbent business house. Add to this the fact that the bulk of the outstanding voting capital in such companies is in family hands, and this alone reduces the floating stock available for churning.
Outshining the market
Its total investment portfolio of equity, preference, debentures etc. has actually outshone the Sensex over a 10 year time span. Take a look at the evidence. In FY01 end, the book value of its investments was valued at Rs 2.7 bn. The corresponding market value was Rs 4.6 bn (market value is 70% more than book value). Cut to FY10 end. The book value of investments was Rs 13.1 bn while the market value stood at Rs 36.4 bn (that is 179% more). Implying a total increase of 378% and 684% respectively in book and market values, over the base period. Juxtapose this with the Sensex gyration over the same time span. The Sensex which closed at 3604 points on 31st March 2001, appreciated to 17528 points on 31st March 2010. That works out to a relatively paltry increase of 386%. Thus, the percentage increase in the marketable value of its investments completely overshot what the Sensex had to show for its efforts.
Portfolio of investments
Its investments, excluding inter-corporate deposits at year end, spans some 21 different industrial segments and encompasses 197 companies- a far cry from FY98 when it peaked at 441 companies. Since then there has obviously been a dramatic change in its investment strategy. Where the company prefers to stay close to the knittings, is when it doles out surplus funds in the form of inter-corporate deposits. The Rs 1.1 bn in such deposits at year end appear to have been made with some or all of the 9 subsidiaries of the company. As a matter of fact it had placed such inter-corporate deposits to the tune of Rs 2 bn with these subsidiaries during the year, and also withdrawn Rs 1.9 bn from them. Smart thinking alright. It is of course difficult to quantify the percentage rate of interest earned on these deposits, as the quantum and tenure of each of these deposits is not known.
Its single biggest equity investment in book value terms, amongst the group companies, which is also its single biggest investment in any company, is in Tata Capital, a newcomer in the Tata Group's scheme of things. The total investment in this unlisted company that it made in FY10 is Rs 780 m (65 m shares).
These top 14 investments, in a manner of speaking, are 'tied' investments as they add to the crucial 'controlling' stake of the Tata Group. The much smaller investments in group companies such as in Tata Consultancy Services, Taj GVK Hotels, Rallis, and Tata Sponge Iron do not add up to much, and are hence possibly jettisonable.
For the matter of record the book value of its biggest equity investment in a listed non Tata company is NTPC at Rs 156 m followed by Reliance Industries at Rs 109 m. But its biggest such investment in a non Tata company is National Stock Exchange at Rs 206 m.
It also has investments in the equity capital of 23 Sri Lankan tea companies on which there does not appear to be much 'due diligence' for the benefit of non management shareholders.
Rolling over portfolio
It has quite some pennies also locked up in the debentures of group companies - Rs 634 m at year end (an attractive proposition) and in preference shares - Rs 450 m. But all these instruments have very attractive coupon rates and, maturity periods too, and hence redeemable at some point of time. Its investment in group mutual fund schemes is Rs 600 m.
The prime factor that apparently determines the tenure of its top gun investment management honcho is not the dividend income that accrues each year, but rather the profit made on rolling over its portfolio. Such profit accounted for 65% of all income during the year up from 61% previously. Total income from all investment outlets grew from Rs 448 m in FY01 to Rs 2.4 bn in FY10, a rise of 427%. Thanks to double taxation benefits, the post tax profit grew 372% to Rs 2 bn. This in turn enabled the management to increase the dividend payments to Rs 726 m from Rs 109 m in FY01. The dividend outflow accounting for 37% of post tax profit, up from 26%. The only sore point in a manner of speaking is that bonus shares account for just 34% of its paid up equity of Rs 482 m.
With India Inc on the threshold of scaling new heights, both within and without the Indian borders, and with the economy on a long term fast roll forward, it is only fair to say that Tata Investment Corporation may continue to outperform an aggressively growing stock market, assuming of course that the investment decisions do not encounter any hiccups along the way.
Disclosure: Please note that I am not a shareholder of this company
This column "Cool Hand Luke" is written by Luke Verghese. Luke has been a business journalist, financial analyst and knowledge management head with a professional experience of more than 20 years. An avid watcher of the stock market, he has written extensively on stock market trends. His articles have featured in Business Standard, Financial Express and Fortune India amongst others. He has also been the Deputy Editor, Fortune India and the Financial Editor of The Business and Political Observer.