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Nov 4, 2022
Yesterday, an auto sector stock saw huge selling pressure to the tune of 10%.
The stock in question is Tata Motors DVR.
Please note we are referring to Tata Motors' differential voting rights (DVR) stock i.e. Tata Motors DVR and not the original stock i.e. Tata Motors.
Tata Motors DVR shares are the differential voting right shares of the Tata Motors that are listed on stock exchanges with different terms than the ordinary shares.
These shares were first introduced by the Tata group company in 2008.
The DVR shareholders do not get equal rights as compared to the ordinary shareholders of the company. If any resolution is put to vote, the holders of DVR shares are entitled to one vote for every 10 DVR shares held.
In the past two weeks, share price of Tata Motors DVR saw a sharp rise. Shares of the company rose from Rs 192 on 20 October to Rs 254 by 2 November.
That's a gain of 32% in just eight sessions.
According to media reports, the street is anticipating a corporate development in Tata Motors, which could be a reason why the stock rose recently.
So why did the stock fall 10% yesterday?
Shares of the company fell on account of profit booking.
Profit booking happens when individuals or companies liquidate their holdings to cash out the profits their investments have created.
Tata Motors DVR was trading close to its 52-week high. Thus, some profit booking was expected.
How DVR shares move similarly with original stock
It's important to note that DVR shares move in tandem with the original stock. If you see the movement of Tata Motors, it shows the same trend...though the movement is less given it's a large-cap stock.
Last month, Tata Motors share price was falling owing to geopolitical tensions and reduced JLR sales.
As Jaguar Land Rover (JLR) accounted for 70-80% of Tata Motors' topline, the recent crisis in Europe among other geopolitical tensions has brought uncertainty for Tata Motors.
JLR has been part of the Tata Motors since 2008 when Ratan Tata was still going global.
For the quarter ended 30 September 2022, JLR reported total sales of 88,121 units. This is 4.9% lower on a year on year (YoY) basis.
in a press release last month, Tata Motors said improvement was lower than planned, primarily due to a lower than expected supply of specialised chips from one supplier which could not be readily re-sourced in the quarter.
The pandemic aftermath, geopolitical tensions, and slow manufacturing of chips have cumulatively caused the semiconductor chip shortage which has affected auto companies.
Owing to all this, the stock of Tata Motors was under pressure.
The silver lining is Tata Motors is getting into new agreements with semiconductor suppliers and is expecting sales to improve in the latter half of this financial year.
The Tata group is also in talks for a semiconductor foray. So in the future, the company won't have to bicker about semiconductor shortage issues.
How Tata Motors DVR has performed recently
In 2022 so far, Tata Motors DVR shares have fallen 4%. On the other hand, Tata Motors has declined by 14%.
Yesterday, Tata Motors DVR crashed 10% to touch a low of Rs 229. Today, the stock is up over 1%.
Tata Motors DVR has a 52-week high of Rs 299 touched on 17 November 2021 and a 52-week low of Rs 180 touched on 20 June 2022.
Take a look at the table below which shows a comparative analysis of Tata Motors with its peers.
Comparative Analysis
| Company | Tata Motors | Force Motors | SML Isuzu | Ashok Leyland | Hero MotoCorp |
|---|---|---|---|---|---|
| ROE (%) | -8.9 | -4.1 | -47.8 | 7.6 | 16.2 |
| ROCE (%) | 1.2 | -2.7 | -16.4 | 7.7 | 20.7 |
| Latest EPS (Rs) | -3 | -67.3 | -44.2 | 3 | 129.8 |
| TTM PE (x) | 0 | 0 | 0 | 49.8 | 20.4 |
| TTM Price to book (x) | 7 | 1.1 | 6.6 | 5.4 | 3.2 |
| Dividend yield (%) | 0 | 0.7 | 0 | 0.7 | 3.6 |
| Industry PE (x) | 49.8 | ||||
| Industry PB (x) | 5.4 | ||||
About Tata Motors
Incorporated in 1945, Tata Motors is one of the leading automotive manufacturers in India.
Essentially a Commercial Vehicle (CV) manufacturer, the company forayed into manufacturing of passenger vehicles across all product segments viz. compact, mid-size and utility in 1998-99, broadening the business horizon of the company.
The company forayed into the premium luxury car segment through acquisition of JLR (Jauguar and Land Rover PLC) in June 2008, which has a presence across various geographies such as Europe, US, China, Russia and Brazil.
To know more about the company, check out Tata Motors financial factsheet and its latest quarterly results.
You can also compare Tata Motors with its peers:
Also check out the below video where Co-head of Research at Equitymaster Rahul Shah explains, why a high PB ratio can be a cause of concern for investors in Tata Motors.
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Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...
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