Tata Motors DVR Shares After Cancellation: What Holders Need to Know

Tata Motors DVR
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Tata Motors DVR shares have been a topic of interest for investors due to their unique features. In this article, we will delve into the concept of DVR and its significance in the Indian market. We’ll also explore why Tata Motors has decided to cancel its DVRs and how it could impact existing holders and potential traders.

Advantages of Holding DVR Shares: Higher Dividends and Benefits

One of the key advantages of holding DVR shares is the potential for higher dividends compared to ordinary equity shares. For instance, if a DVR offers 5% more dividend than an ordinary share, an investor holding DVRs would receive ₹21 in dividends for every ₹20 dividend received from a regular equity share.

Companies with DVR Shares in India: Tata Motors and Others

  • Tata Motors
  • Pantaloons
  • Gujarat NRE
  • Jain Irrigation
  • Future Enterprise

Companies with DVR Shares in India: Tata Motors and Others

DVR shares and common equity shares represent distinct avenues for companies to raise capital and manage shareholder influence. In the case of common equity shares, the principle of “one share, one vote” grants each shareholder the power to cast a single vote for each share they own. On the other hand, DVR shares follow a different approach, where 10 shares correspond to a single vote, resulting in diluted voting rights for DVR holders. Companies opt to issue DVR shares as a means to raise equity capital without compromising their management and control. While DVR shareholders enjoy ownership in the company, their limited voting rights mean they have less influence over significant corporate decisions compared to common equity shareholders. This distinction underscores the delicate balance between financial funding and corporate governance that companies must consider while choosing between the two share types. Investors must carefully assess their investment objectives and the company’s structure to make informed decisions about holding DVR or common equity shares.

Tata Motors’ Decision: Streamlining Capital Structure and Its Impact

Tata Motors, the famous car company, has decided to make things simpler by canceling something called “Differential Voting Rights” (DVRs). They made this decision six months after delisting their American Depository Receipts (ADRs). You see, DVRs have less voting power compared to regular shares, but they offer higher dividends, about 5% more. The interesting part is that Tata Motors DVRs are traded at almost half the price of regular shares, giving investors a chance to make some smart moves in the market. In recent trading, Tata Motors DVRs closed almost 5% higher at Rs 374.40, while regular shares closed 1.6% higher at Rs 639.45.

This change in Tata Motors’ structure will have an impact on DVR holders. If you own DVRs, you’ll get seven ordinary shares for every ten DVRs you have, so it’s time to consider what to do next. It’s like a puzzle for investors because DVRs and regular shares have different voting rights. As DVRs are being canceled, regular shares will have more power in decision-making within the company.

If you’re thinking of investing, you need to keep an eye on the market and understand how this cancellation affects your plans. With DVRs and regular shares having different prices, you might find opportunities to buy or sell for profit. The experts’ advice could come in handy to decide the best time to make your moves.

The Journey of Tata Motors DVRs: Trading at Attractive Prices

As Tata Motors goes through this change, the financial world might experience ups and downs. It’s essential for shareholders and traders to stay alert and informed. Understanding what’s happening with Tata Motors’ capital structure will help you make better decisions for your investments and manage any risks that come your way.

Most of the Tata Motors DVRs, around 92%, are owned by regular people like you and me. But there are also some big and important traders who hold these DVRs. Mutual funds, which are like a group of people investing together, have about 28.82% of the DVRs. Among them, ICICI Prudential has the highest share at 19.35%.

There are also investors from other countries who own some of these DVRs. Together, they hold about 18.6% of the DVRs. Some well-known names in this group are Franklin Templeton, Government of Singapore, and Vanguard. And guess what? Even Rekha Rakesh Jhunjhunwala, a famous investor, owns some Tata Motors DVRs too. At the end of June, she held about 1.92% of them.

Impact on DVR Holders: What You’ll Receive After Cancellation

If you currently hold 10 DVRs of Tata Motors, under the new plan, you will receive seven regular shares of the company, and these regular shares will be fully paid for, meaning you won’t have to pay anything extra for them.

The company has thought about this carefully, and they will give you these regular shares at a price that is 23% higher than the price of the DVRs on the previous day. But don’t worry, even with this increase, the price of these regular shares will still be 30% lower than the price of the ordinary shares. This plan will also lead to a reduction in the total number of outstanding shares of the company by about 4.2%. This is good news for all shareholders because it will make the value of their shares go up a little.

also read: ITC Share Price Crosses Rs 500 Mark: A Promising Outlook for Upcoming Sessions

Current Market Situation: The 43% Discount and Potential Rise in DVR Prices

Right now, the price of DVRs is about 43% lower than the price of regular shares. But the company has decided to cancel the DVRs and replace them with regular shares, which will remove the opportunity for arbitrage (buying low and selling high for profit). As a result, the prices of DVRs are expected to rise significantly today. If the difference in prices between DVRs and regular shares is around 8-10%, people who currently hold both should sell their positions, as advised by Nuvama Equities. This change will take about 12-14 months to happen, so if you want to make a new investment, the best time to do it would be when the price difference (spread) is around 15%. For the plan to go ahead, the company needs approvals from different parties, including the capital market regulator SEBI, creditors, stakeholders, and the NCLT (National Company Law Tribunal).

Conclusion

Tata Motors’ decision to cancel its Differential Voting Rights (DVRs) brings changes to its capital structure. DVR holders will receive fully paid-up ordinary shares, but the arbitrage opportunity between DVRs and regular shares will vanish. The next 12-14 months are crucial, with DVR prices expected to rise significantly. Investors should understand the 23% premium and 30% discount in regular share pricing. The reduction in outstanding shares by 4.2% promises value accretion. Success during this transition requires informed decisions, vigilance, and adaptability. Regulatory approvals will shape the company’s future. Investors must navigate this period wisely to capitalize on opportunities and position for potential growth.

frequently asked questions (FAQ)

What are DVR shares, and how do they differ from common equity shares?

DVR shares, also known as Differential Voting Rights shares, differ from common equity shares in terms of voting rights. In common equity shares, each shareholder typically has one vote per share they hold. However, in the case of DVR shares, the voting power is diluted, and multiple shares are required to cast a single vote. For example, 10 DVR shares may have voting power equivalent to one vote.

Why do companies issue DVR shares, and what advantages do they offer?

Companies issue DVR shares as a means to raise equity capital without giving up significant control over decision-making and management. By offering DVR shares, companies can attract investors who are interested in owning a part of the company but are willing to accept reduced voting rights. This allows founders and major stakeholders to maintain a higher degree of influence and control over the company’s affairs.

Which Indian companies have issued DVR shares, and can you name a few?

Several Indian companies have issued DVR shares, including Tata Motors, Pantaloons, Gujarat NRE, Jain Irrigation, and Future Enterprise.

What are the potential benefits of holding DVR shares, especially in terms of dividends?

One of the key advantages of holding DVR shares is the potential for higher dividends compared to ordinary equity shares. For instance, if a DVR offers 5% more dividend than an ordinary share, an investor holding DVRs would receive ₹21 in dividends for every ₹20 dividend received from a regular equity share.

Disclaimer

The information provided in this blog is for general informational purposes only and should not be considered as professional financial or investment advice. The content is based on the knowledge available up to September 2021, and circumstances may have changed since then. Always conduct thorough research and seek advice from a qualified financial advisor before making any investment decisions. The blog author and publisher are not responsible for any actions taken based on the information provided in this blog. Any reliance on the content is at your own risk. Remember that the financial markets can be volatile, and past performance is not indicative of future results. The company mentioned in the blog may have undergone changes or developments that are not reflected here. Please verify the information with credible sources before making any financial decisions.

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