Why should one look at holding companies?

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One should look at holding companies because of the discount to the underlying share value, its exposure to a well-managed group and dividend payouts.

1) Bajaj Group

There are two holding in this group — Maharashtra Scooters and Bajaj Holdings

a) Maharashtra Scooters

In the past year the company has upped the dividend payout to Rs 160 per share.

The interim dividend in 2022 was Rs 100 per share and the final dividend in 2023 was Rs 60 per share.

The company holds stakes in various Bajaj group companies and their values are mentioned below:

So effectively, the company trades at 75 percent to the value of the shares it holds. Its Mcap is Rs 6,066 crore and the valued of listed investments is Rs 24,751 crore.

b) Bajaj Holdings and investment

The other holding companies discount has narrowed quite a bit as promoters have also increased stake in the company from 49.95 percent in March 2021 to 51.46 percent in March 2023.

]The company holds stakes in various Bajaj group companies and their values are mentioned below:

So effectively the company trades at a 46 percent to the value of the shares it holds — Bajaj Holding in mcap is Rs 77,400 crore and is value of listed investments is 14,32,31 crore.

2)Tata Investments

Tata Investments holds stake in both, Tata and Non-Tata Group companies. As of the last disclosure, 75 percent of their investments are in Tata Group companies.

As of March 2023, the value of holdings is at Rs 19,402 crore, mcap is Rs 8,810 crore, and holding company discount is at 55 percent.

Following are the values of the key companies in which it holds stake:

3) Sundaram-Clayton Ltd

TVS Motors has been an outperformer and its holding company Sundaram Clayton, which also has a core business in ‘manufacturing non-ferrous gravity and pressure die castings’, will be demerged soon. As per analysts, the value of this business to be demerged will be approximately Rs 1200 crore.

So ex of this demerged business, its MCap is Rs 7,800 crore, which means it trades at a 75 percent discount to its 50 percent holding in TVS Motors worth Rs Rs 31908 crore.

4) Kirloskar Industries Ltd

Kirloskar Industries is the holding company of Kirloskar group companies and the value of its holding is given below:

Kirloskar Industries' Mcap is of Rs 2,955 crore, and value of listed investments is Rs 5,311 crore.

The holding company discount doesn’t appear that much at 46 percent but it has a land back, which it seems the Street is factoring in.

Its real estate portfolio includes three Avante Projects in Kothrud, Pune, with total saleable land of 0.187 million square feet as well as integrated development on 75 acre land in Khadki.

5) EID Parry (India) Ltd

Its core business profitability will improve from here on as distillery unit ramps up and the company has also been repaying debt via paring some stake in Coromandel.

The management guidance on the ethanol business is that sales are likely to increase to 17 crore litre by FY25 from 10 crore litre in FY23. And Interest rates are also coming down from 136 percent in FY20, to 93 percent in FY21, 46 percent in FY22 and 36 percent in FY23.

As per analysts the core business should be valued at approximately Rs 4000 crore. So ex of core business, the company trades at a 71 percent holding company discount.

To summarise, its ex core business Mcap is Rs 4,535 crore and it has a 56.27 percent stake in Coromandel worth Rs 1,5,727 crore.

We need to track how the core businesses of these holding companies perform, and also track over a period of time if this holding company discount narrows down.

For more details, watch the accompanying video