Consolidating Investments - Tata Investment Corporation

Tata Investment Corporation (TIC), one of the lesser-known Tata Group companies, has the distinction of the first publicly-held investment companies to be listed on bourses. TIC was founded in 1937 and got listed in BSE in 1959. Its main business activity includes investing in equity of listed and unlisted entities, debenture, mutual funds, government bonds and securities. The company earns its revenue from dividend and profit on sale of investments. These investments are not sector-specific and have a time horizon of three to five years. In these difficult times when the equity market has taken a huge beating, TIC investment in government securities and bonds give partial protection from this carnage. Moreover, future growth for the company will come from its investment in various unlisted and start-up companies. Investment in various Tata promoted companies like TACO and Tata Sons and others like Meclai Capitaland Financial Services will unlock the values once they get listed in the bourses. Witnessing the changing market conditions, the company has tried to consolidate its investment. TIC has pruned its investment from 229 companies in FY07 to 184 in FY08. To take advantage of falling market the company has raised equity of around Rs 448 crore in October 2008 through right issue of approx 69 lakh ZCCB (Zero Coupon Convertible Bonds). Dilution in share capital will come into effect only after August 2009 when the first lot of bonds is due for conversion. The fund so raised will help the company to do value buying for long-term gain.

Performance and Valuation
TIC recently announced its result for first-half of the year and Q2FY09. Inthe first half of the year the company posted topline of Rs 136.64 crore, an increase by 4.4 per cent compared to last year. In the same time period bottomline increased from Rs 120.37 crore to Rs 124.68 crore giving a gain of 3.5 per cent. TIC has very low operating cost and maintains operating margin of 96 per cent. Company offers benefit of close-ended mutual fund scheme without having hefty asset management fee and distribution cost. In last six month, the company performance is marginally better than the broader market index Sensex. In the first half of this financial year when the market has taken a beating of16.4 per cent, NAV (net asset value) of the company decreased by 15.5 per cent. Investment companies like this cannot be valued on the basis of EPS and PE. It is valued on the basis of discount to its NAV. At the current market price of Rs 308 the company discounts its NAV by 45 per cent. When we compare this with other closed ended funds like Morgan Stanley, which is discounting its NAV by 20-25 per cent, we find TIC is quite attractive at this price with potential upside of 30 per cent from this level in next one year. Moreover, the company is consistently paying dividend and has dividend yield of five per cent. Therefore, we recommend our readers to invest in the scrip with one-year time horizon and target price of Rs 375.