Differential Voting Right

Differential Voting Right (DVR) is not a new concept but only 3 companies have issued these types of securities. It simply means holder of DVR surrenders their right to vote. (Very few retail investors make their vote count). All other right for DVR holder remains same and in some case it is being compensated by entitling them for 0.5% more dividend in comparison with ordinary equity share.

Benefits of DVR

1.    Investor gets almost double dividend yield in comparison to ordinary equity share as the price is ruling at 40% discount and entitlement for additional 0.5% (Tata Motor) in comparison with ordinary equity share.

Particular	CMP	DVR CMP	Discount(%)	Divi.(Rs/share)	Ordinary Share Divi. Yield(%)	DVR Divi. Yield(%)
Tata Motor	1182	730	38.24	15	1.27	2.05
Gujarat NRE Coke	68	39	42.65	1	1.47	2.56
Pantaloon Retail	365	303	16.99	0.8	0.22	0.26

2.    Promoters can raise fund without diluting their stake which reduces takeover chance.

I believe

Fundamentally this difference (i.e. 38% to 42% discount to CMP) should reduce to ideally 5% to10% in years to come resulting in risk free outperformance. Mature market can make this thing happen and in long term market is always mature.

Here we take example of Tata Motor. Tata motor DVR were issued through right issue at discount of 10% @ Rs. 305 while ordinary equity shares were offered @ Rs. 340. Comparing the trading pattern of both DVR and Ordinary Equity Share shows amazing price movement. It is evident from following table that how over a period of time DVR Price moved to significant discount from huge premium.

Tata Motor	Ordinary	DVR	Premium (-)(%)
Date	Price	Price2	Discount(+)(%)
5-Nov-08	182.2	238.1	-30.68
12-Nov-08	150.45	278.4	-85.04
4-Dec-08	150.95	148	1.95
6-Jan-09	186.45	133.85	28.21
6-Feb-10	680.2	383.85	43.57

Imagine the situation on 5^th November, 2008 where Investor who subscribed DVR and sold their investment at Rs. 238 and bought ordinary equity share at Rs. 182. Today on 7^th January, 2011 DVR is trading at Rs. 730 giving 307% appreciation while Ordinary equity share is trading at Rs. 1182/- giving 650% appreciation. This kind of opportunity, if grabbed, results into risk free outperformance like anything.

Note: - In NSE, on 5thNov. Only 360 shares were sold for delivery i.e. 5% of total traded quantity……..so how many would have grabbed that opportunity.

Conclusion:-

Those who are long term investor and in search of risk free outperformance can start accumulating Tata Motor DVR and Gujarat NRE Coke DVR at this level. It is also possible that discount may widen in days to come. That is why I said start accumulating. Same is not applicable in case of Pantaloon Retail as discount is not that much wide.

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Keep tracking your investment. Opportunity can come anytime.