Tata Motors DVR jumps nearly 3%; crosses Rs 300 mark after over 6 years

With debt on a substantial downward trajectory and consequently interest outgo, it outlined its intention to commensurately increase dividends, going forward positive for DVR shareholders

Shares of Tata Motors DVR (Differential Voting Rights) rose 2.6 per cent to touch the Rs 301 mark on the BSE in Monday’s intra-day trade. The stock crossed Rs 300 after a gap of over six years. It was trading at its highest level since February 2017.

Thus far in the calendar year, the market price of the company has surged 46 per cent as compared to a 2.6 per cent rise in the S&P BSE Sensex.

DVR shares are shares that are permitted to be issued with differential voting and differential dividend rights. DVR shares are different from ordinary shares in two distinct ways.

Firstly, they offer lower voting rights compared to ordinary shares. These DVR shares are therefore useful for companies that want to raise money in the market without diluting effective control of the company. Secondly, to compensate for the lower voting rights, these DVR shares are paid a dividend premium of 10-20 per cent.

According to Motilal Oswal Financial Services, this ideally should make sense for the small and retail shareholders as they normally do not participate in the voting process. Giving away part of their voting rights for higher dividends is a good ploy for these shareholders. Additionally, since DVRs have always quoted at a discount of 30-40 per cent in the Indian context, the higher dividend pay-out makes the DVR a lot more attractive in terms of dividend yields, the brokerage said.

On May 12, the board of directors at its meeting has recommended a final dividend of Rs 2 per ordinary share of Rs 2 each (at 100 per cent) and Rs 2.10 per ‘A’ ordinary share of Rs 2 each (at 105 per cent) for the financial year ended March 31, 2023.

Last week, Tata Motors had conducted its investor day with respect to Indian operations wherein the company said it was aiming to be net auto debt free by FY25 and capex for Indian operations pegged at around Rs 8,000 crore for FY24E with capex/investment in the electric vehicle (EV) business pegged at $2 billion by FY27 (majority on product and platform).

With debt on a substantial downward trajectory and consequently interest outgo, it outlined its intention to commensurately increase dividends, going forward (positive for Tata Motors DVR shareholders), according to ICICI Securities.

Further, the company also shared probable synergies and backward integration benefits with Tata Sons entity “Agratas”, which is putting up an EV cell manufacturing facility in India (in about two years with initial capacity of 20 GwH). Further, the company informed about Ford's Sanand plant to ramp up from H2FY24 and producing both ICE & EV.

“We came away impressed by the background work that the company underlined behind its success in the PV space amid new forever series of products, its focus on design, safety and technology and ethos over sustainability,” the brokerage said in a note.