Tata Motors and Jain Irrigation shares with differential voting rights surged over 30% in past month
Differential voting rights (DVR) are hogging the limelight on the bourses, with the gap between these shares and ordinary ones narrowing in the last one month.
All four listed DVRs – Tata Motors, Pantaloon Retail, Gujarat NRE Coke and Jain Irrigation Systems — have outperformed ordinary shares since February 2012.
The DVRs of Tata Motors, the first Indian company to issue equity shares with differential voting rights, has rallied 31 per cent against 15 per cent gain notched by its ordinary shares, and Jain Irrigation Systems’ DVR gained 30 per cent, compared to nine per cent increase in its common shares.
Gujarat NRE Coke DVR shares surged 19 per cent compared to a 11 per cent gain in its ordinary shares, while the DVR shares of Pantaloon Retail jumped five per cent against a four per cent fall in its common shares.
| OUTPERFORMING ORDINARY SHARES | |||
| Price on BSE in Rs | %chg | ||
| 31-Jan-12 | 9-Mar-12 | ||
| Gujarat NRE Coke | 22.35 | 24.85 | 11.2 |
| Gujarat NRE Coke-DVR | 12.64 | 15.1 | 19.5 |
| % lag* | -43.4 | -39.2 | |
| Jain Irrigation | 95.50 | 103.6 | 8.5 |
| Jain Irrigation-DVR | 36.70 | 47.90 | 30.5 |
| % lag* | -61.6 | -53.8 | |
| Pantaloon Retail | 168.70 | 162.55 | -3.6 |
| Pantaloon Retail -DVR | 94.65 | 98.90 | 4.5 |
| % lag* | -43.9 | -39.2 | |
| Tata Motors | 243.60 | 279.20 | 14.6 |
| Tata Motors-DVR | 117.95 | 154.80 | 31.2 |
| % lag* | -51.6 | -44.6 | |
| *DVR discount to ordinary shares; Data complied by BS Research | |||
A DVR share is like an ordinary equity share, except that it provides fewer voting rights to the shareholder. For instance, while a normal Gujarat NRE Coke shareholder can vote as many times as the number of company shares he or she holds, someone who holds the company’s DVR shares will need to hold 100 of these instruments to cast one vote.
Analysts feel there is more upside than downside to DVR shares at this point in time, as internationally DVR shares trade at a discount of 10-12 per cent to common shares.
However, some even trade at a premium. In the Indian context, the premium or discount varies widely. “There is speculation on the Street that DVR difference will come down to 15 to 20 per cent, which is generally the practice in overseas markets,” said Kishor Ostwal, chairman and managing director, CNI Research.
The discount between Tata Motors’ DVR shares and its ordinary shares narrowed to 45 per cent on Tuesday from its peak level of 52.8 per cent on November 27, 2011. Tata Motors’ DVR shares traded at an average discount of 49 per cent in the last three months. “As promoters’ holding has substantially narrowed over the period, we do not feel the DVR discount is likely to widen any further. The discount has to come down to a more respectable level of 30 per cent, which has been the average discount over the years,” said Ambareesh Baliga, chief operating officer, Way2Wealth Securities.
Most DVRs trade at a discount to ordinary shares, owing to fewer voting rights. Companies generally compensate DVR investors with higher dividend than ordinary shares.
Due to this, these shares are listed at a discount to the parent share of the company. “DVR shares have still not gained wide acceptance in India as it has internationally, due to lack of understanding and awareness about the product. Investor participation will increase only when they understand this instrument will give them higher dividend, as well as a chance to participate in the fundamental story of a company through capital appreciation,” Baliga said. Jain Irrigation Systems is trading at the highest discount (54 per cent) amongst the four companies that have issued DVRs.
