6 Reasons Why This Stock Is Undervalued And Offers Scope For Good Returns

Published: Tuesday, June 7, 2016, 9:29 [IST]

Markets are fairly valued at the current levels of nearly 27,000 points on the Sensex. However, there are still select pockets that can offer returns to investors. Here are 7 reasons to buy the Tata Motors DVR.

The major difference between the Tata Motors DVR and the Tata Motors shares is that the voting rights for DVR holders is one tenth of equity shareholders. But, you get extra dividend and steeply undervalued shares. So, it is better to buy DVRs of Tata Motors.

Small shareholders couldn't care about voting rights. Check the slideshow on why you should buy the DVRs of Tata Motors.

1) Steep discount to shares of Tata Motors

Shares of Tata Motors is trading at Rs 461, as compared to the DVR's, which are trading at just Rs 318. This is a good 30 to 35 per cent discount. Even in countries abroad, you never find DVRs trading at such high discount to the equity shares.

2) 5 Per cent more dividend

Tata Motors DVR offer a dividend of 5 per cent extra as compared to equity shares. This is pretty decent, given that dividend yields also go up due to lower DVR prices.

3) Hugely undervalued prices

Analysts expect Tata Motors to report an EPS of Rs 60 for 2016-17. This means the DVRs are trading at a p/e of just 5 times one year forward earnings. This makes the DVRs highly undervalued at current levels.

4) Solid performance

Quarterly numbers of Tata Motors for the quarter ending March 31, 2016 was solid. Standalone revenues grew 16.6 per cent, while JLR revenues rose 13.2 per cent year on year. Profits and margins also beat expectations.

5) New launches to drive growth

The company has a solid pipeline of new launches. This include in key markets like China, which continues to drive growth. This is likely to boost the DVR prices of the company in the months to come.