Maharashtra Scooters – Potential Value Unlocking?

Published: Mar 27, 2021

Current Price: ₹ 3520
52-week range: ₹ 1815 – ₹ 4400

Maharashtra Scooters Limited (MSL) is part of the reputed Bajaj Group, and a subsidiary of Bajaj Holdings & Investment Limited (BHIL). It is a pure-play holding company (holdco).

Investment Portfolio:

MSL’s quality of holdings is good, mostly tied to the finance industry.

Investors:
– Promoters hold 51% of the company
– FIIs hold 4.6% of the company
– Raamdeo Agarwal holds 1.5% of the company
– Motilal Oswal holds 1.1% of the company

Management:
Bajaj Group is among the top 10 biggest wealth creators in India (1995-2020).

Source: Motilal Oswal

Holdco:
Investors can focus on holding companies that have good promoters, hold good quality companies, and consistently pay out dividends.

Generally holding companies trade at a discount of 50% to 80% in India. The discount usually widens in a rising market as the underlying companies move up.

A higher discount rate implies greater uncertainty, higher return potentials, and a good value investment. Investors can buy holding companies when the discounts are high, and reduce them when the discounts are low.

Valuation:
MSL:
Market Cap = ₹ 4021 cr = 76% discount to holding value
Book value = ₹ 9675
Stock Price = ₹ 3520 = 0.36 times book value (cheap)

MSL has a market cap of ₹ 4021 crore, against its NAV of ₹ 16,623. The holdco discount is 76%.

BHIL:
Market Cap = ₹ 36,600 cr
Book value = ₹ 2845
Stock Price = ₹ 3290 = 1.16 times book value

BHIL has a market cap of ₹ 36,600 crore, against its NAV of ₹ 1.04 lakh crore. The holdco discount is 65%.

Conclusion:
There may be a potential value unlocking. There is no reason to have two holding companies. I think MSL may be eventually merged into BHIL. But there is no crystal ball to say when this will happen. Investors may have to wait for 3-5 years to realize the market value of the underlying investments.

Disclosure:
For educational purposes only. Not a recommendation to buy or sell.

Reference:
MSL – Annual Letter 2020
Motilal Oswal 25th Annual Wealth Creation Study
MSL becomes subsidiary of BHIL
MSL an arm of BHIL
Why have you invested in MSL?

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