Synopsis: Holding companies like Kama Holdings Limited, Bajaj Holdings & Investment Limited, and TVS Holdings Limited often trade at lower valuation multiples compared to their underlying assets. Despite strong portfolio companies and steady long-term returns, their market prices reflect structural valuation gaps within the Indian equity market.
Indian holding companies typically trade at 30–90% discounts to their net asset value due to taxation concerns, limited minority control, high promoter ownership, low liquidity, and market cycle impact. These structural factors reduce price discovery efficiency and delay value realisation, keeping valuations below underlying investment worth.
A holding company is a business structure that has been registered with the intent of controlling other group companies. The main purpose of a holding company is to make investments in other group operating companies.
Examples:
Kama Holdings
Kama Holdings Ltd is the promoter holding company of SRF Limited and derives maximum value from its substantial stake in the speciality chemicals major. The recent board approval to sell up to 3% of SRF may result in its holding falling below 50%, which could affect the status of its subsidiaries. Like other holding companies, Kama Holdings Ltd tends to trade with a discount to the market value of its SRF stake.
With the market cap of Rs 9,022 crore, the shares of Kama Holdings Ltd have closed at Rs 2,811. The shares are trading at a PE of 9.6, whereas its industry PE is at 18.6. The shares have given a return of more than 140% in the last 5 years.
Bajaj Holdings and Investment Ltd
Bajaj Holdings & Investment Ltd is essentially the investment holding company of the Bajaj Group, with strategic investments in Bajaj Auto, Bajaj Finserv, and Bajaj Electricals, with the largest part of its intrinsic value contributed by Bajaj Auto and Bajaj Finserv.
The company essentially provides a proxy investment opportunity in these flagship businesses, with the benefit of dividend income and growth. Nevertheless, like most investment holding companies, it normally trades at a discount to the sum-of-parts value of its underlying investments.
With the market cap of Rs 1.26 lakh crore, the shares of Bajaj Holdings & Investment Ltd have closed at Rs 11,380. The shares are trading at a PE of 17.2, whereas its industry PE is at 18.6. The shares have given a return of 200% in the last 5 years.
TVS Holdings Ltd
TVS Holdings Ltd is the promoter holding company of TVS Motor Company and holds a controlling stake of approximately 50% in the company. This provides effective management control and ensures continuity. The valuation of TVS Holdings Ltd is highly sensitive to the performance of TVS Motor Company and can be considered a leveraged play on the two-wheeler and EV story.
With the market cap of Rs 29,768 crore, the shares of TVS Holdings Ltd have closed at Rs 14,713. The shares are trading at a PE of 19, whereas its industry PE is at 26.2. The shares have given a return of 450% in the last 5 years.
Why do these companies trade at a discount?
Holding companies are known to trade at a discount to the fair value of the assets they own, and this is a structural issue rather than a temporary one. As discussed in the report, the value of a holding company is generated from its investments in group companies, but the stock price of the holding company is always lower than the net asset value (NAV) of such investments. In the Indian context, such discounts are much higher, ranging between 30% and 90%, compared to the global average of 10-25% for similar holding companies.
The primary reason for such a discount is tax and distribution issues. Suppose the holding company decides to realise its investments and distribute the same to its shareholders. In that case, taxes may be applicable. This is taken into consideration by investors while valuing the stock. Therefore, even if the investments are worth Rs 100, the market value of the holding company could be much lower than that due to the inefficiency of realising the same in the future.
The other important consideration is the lack of control over minority shareholders. The timing and manner of realising the underlying value are typically determined by the promoters and not the general public shareholders. Since investors have no control over when the value is to be realised, the uncertainty level rises, and this results in a discount on valuation. Furthermore, most Indian holding companies have a very high level of promoter shareholding (above 50%) with limited free float and institutional holding.
The low liquidity and small market capitalisation are also important contributors to the discount. Most holding companies have low trading volumes and institutional penetration, which makes the efficiency of price discovery lower. When large investors face difficulties in entering or exiting a position, they require a safety margin, which is evident in the lower valuation.
Finally, discounts are also subject to market cycles. The report indicates that there is an inverse relationship between midcap performance and discounts for holding companies, such that discounts contract during bull market periods and expand during bear market periods. Furthermore, if the investments are not growing or if there are concerns about the monetisation of investments, the discounts may remain high for a considerable period of time. Thus, the discount on the holding company captures the effects of taxes, governance, liquidity constraints, market psychology, and uncertainty about the realisation of value.
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