The financial markets have developed over the years. So have the securities that are traded in the market. An investor gets different options of investment such as equity, debentures, derivatives or can be hybrid securities. In 2008, Tata motors issued a new type of security known as the Differential Voting Rights or DVR shares. It was the first Indian company to issue those shares in the markets. In this article, we will have a look at Tata Motors DVR and understand how it is different from Tata motors ordinary shares. Keep reading to find out!
About Tata Motors
Tata Motors Limited is an Indian multinational automotive manufacturing company founded in 1945. It is a part of the steel-to-salt Conglomerate Tata Group. The company produces passenger cars, trucks, vans, coaches, buses, luxury cars, sports cars and construction equipment.
Tata motors operate in countries including India, the UK, South Korea, South Africa, China, Brazil, Austria and Slovakia through a strong global network of subsidiaries.
The company is a leading player in the Commercial Vehicle segment with a market share of 43.0% as in FY20. It has plans to foray into the Electric Vehicle(EV) space. Tata Motors is the leader in the EV segment in India with its automobiles Tigor EV and Nexon EV. It managed to sell 2,600 units of its EVs in 2020 which translated into a 63% market share.
What Are Tata Motors Ordinary Shares?
A company’s capital is divided into small equal units of a finite number which are known as shares. Investors who hold Tata motors shares are known as shareholders or owners of the company. Tata motors have a total share capital of Rs 765.81 Crores in FY21.
Around 46.41% of Tata Motors is held by the promoters, followed by Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs) who hold 13.35% and 13.45% respectively.
The public holds around 26.8% of the total shares. The equity shareholders are given the right to vote on important matters relating to the company. It can include matters of corporate actions, elect members to the board of directors, or approve issuing new securities or payment of dividends.
QUICK READ – Tata Motors Stock Study
How Are Tata Motors DVR Shares Different?
DVR stands for Differential Voting Rights shares. It must be noted that these are different from the preference shares. In the case of preference shares, the shareholders do not get any voting rights. The DVR shares are generally issued to raise equity capital without changing its management and diluting the control.
It just adds the number of investors in the company. The DVR shares are issued at a discounted price which increases the likelihood of raising adequate capital. Further, the DVRs can be differentiated from ordinary shares in two distinct ways:
Voting Rights: Section 47 of the Companies Act 2013 relates to the voting rights of shareholders in a Company. It states that each member of a company that is limited by shares in adding up to holding equity share capital in that will have a right to vote on every resolution related to the company.
In the case of the Tata DVR shares, they offer lower voting rights compared to ordinary shares. Tata Motor DVR has a 10% voting right as compared to an ordinary Tata Motor share.
Dividend: To compensate for the lower voting rights, these Tata DVR shares pay a higher dividend premium. This can be an ideal choice for small and retail shareholders of a company as they generally do not participate in the voting process. Tata DVR has consistently declared dividends over the years. The dividend per cent is around 10-20%.
By giving away part of their voting rights for higher dividends, the investors might be able to earn more. Additionally, Tata DVRs have always been quoted at a highly discounted price. The discounted price coupled with the higher dividend pay-out makes the DVR a lot more attractive in terms of overall returns.
Performance of Tata Motors DVR
Tata Motors is the first Indian company to have issued a Differential Voting Right (DVR) shares. The shares of the company are also listed separately. The move came to fund the acquisition of Jaguar Land Rover. The company issued 6.4 crore DVR shares at Rs 305 a share when the ordinary shares were at Rs 340.
At the beginning of the year, the Tata DVR shares were trading at somewhere at Rs 83.12 apiece. Over the year the share price has increased by 175% and is currently trading at Rs 229 apiece. Recently the Big bull of India Rakesh Jhunjhunwala increased his holdings in shares with differential voting rights. His holdings rose to 3.93% during the September quarter of FY21.
(Source – Tradebrains Portal)
Performance of Tata Motors
In January 2021, the shares were trading at Rs 191.41per share. Throughout the year the shares have added around 145% to its market price and is currently trading at Rs 469.63 per share. Ace investor Rakesh Jhunjhunwala holds around 3,67,50,000 shares of 1.1% of the company. The shares of Tata motors have been performing well as the investors are expecting better returns from the company. It has set up a separate subsidiary to conduct its EV business — Tata Motors EVco Ltd.
(Source – Tradebrains Portal)
In this article, we looked at how Tata motors shares are different from the Tata DVR shares. Investors should look at all the aspects before investing in DVR shares. Despite the high dividends, they should be mindful that liquidity at the counter is low when compared with ordinary shares.
This can be a good option for strategic investors who are looking at a big investment in a company but with fewer voting rights. Also, DVRs have trading limits, while ordinary shares have no circuit filters as they are part of the Nifty index, as well as trading in the derivatives market.
That’s all for this article. Happy Reading!