Tatas boosting stake in Tata Motors is fund misallocation: Ican

Morgan Stanley on Monday launched a book to buy 5 crore shares of Tata Motors for a client at 10 percent premium to the current closing price of Rs 454 per share. It amounts to 1.73 percent stake in Tata Motors, people close to the development told CNBC-TV18. The buyer it is learnt could well be the promoter -- Tata Sons -- itself. The price at which this block trade is expected to happen is Rs 499.80 per share. The potential block deal is to the tune of Rs 2,500 crore.

Speaking to CNBC-TV18 Anil Singhvi of Ican Investment Advisors said that he was amused by the Rs 2500 crore cheque. It is not the best allocation of funds, he said, adding that it was a misallocation of funds for taking Cyrus Mistry out. Many questions remain unanswered, he said, referring to whether Tata Sons will be looking at doing the same to other group companies.

The tide will most likely turn against Cyrus in the extraordinary general meetings that have kicked off, he said.

Shareholders in group companies don’t know which way to turn, said Singhvi. And the whole thing is getting uglier by the day, he said. “The whole board hasn’t been running companies in the last one month but they are seeing whether or not they could remove Mistry.”Ashwin Patil, Research Analyst at LKP Securities said that Tata Motors is suffering a downside movement since the Mistry fiasco. The stock will be on an upmove till Rs 500 per share and fundamentals look good, he said.The long term target price remains at Rs 600, he said.Below is the verbatim transcript of Anil Singhvi's interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.Latha: The Tatas have shown that they will pay their way that they will spend money. How should investors in old Tata Group companies look at this signal?A: This fight is getting messier by the day because this is not the best allocation of capital by Tata Sons but one can argue both ways that Tata Sons definitely want Cyrus Mistry to be out. So they will use every ammunition at their hand but it will still leave the minority shareholders completely into lurch.I am a bit amused by this whole Rs 2,500 crore cheque for just shoring up 1.5 percent shareholding in Tata Motors, which shows that somewhere Tata Sons also feel that there could be some wins for Cyrus, which is not making me happy at all on this because this is not a personal situation, which Tata Sons should be looking at. They have not yet removed him from Tata Sons' board. There are many questions, which have remained unanswered.So I am a bit disappointed by this because Tata Trust was always asking for Tata Sons' help in terms of increasing dividend. So this is not the best allocation of the capital by Tata Sons. I don’t know how Tata Trust will view this action of Tata Sons.Anuj: There is one theory in the market that this could be one step towards the ultimate truce and this could be done to increase some of the part valuation of Tata Sons so that 18 percent Mistry's stake gets reasonable valuations on exit. Your thoughts on that.A: I think there is too much of kite flying around that because 18 percent and first of all whether Cyrus is interested in selling off his 18 percent in Tata Sons and then look at the valuations. So to my mind, this is very small battle to be fought because many companies, Tata Sons directly does not own that much of percentage.So I think this is another way of Tata Sons to shore up certain percentage holding in the company directly by Tata Sons but Rs 2,500 crore according to me is a very poor allocation, it is a misallocation of funds for just shoring up for taking Cyrus out and there was no rationale, no reasons that Tata Motors share today look good for Tata Sons acquisition by about Rs 2,500 crore. So there are a lot of questions to be answered on this issue of 1.7 percent stake increase on that and would they be also doing in another companies because I think Tata Global and Tata Chemical and Tata Steel and how much ammunition does Tata Sons have and is that the right way of spending that much of money on shoring up the stakes just to take one person out and more importantly he continues to be on the Tata Sons' board.Sonia: What should one expect from the EGM on December 22 -- it seems imminent now that Cyrus Mistry will be ousted but minority shareholders, what should we expect?A: I think in most companies, it is against Cyrus and in favour of Tata Sons as things stand today and today's action of Tata Sons to shore up their holding in Tata Motors definitely makes me believe that they want to use every ammunition to oust the Cyrus. Now it is a different matter whether Cyrus would go to the court and ask for and seek for the minority protection because he is 18 percent shareholder. That is a legal battle which may -- we get to see in next couple of days. I expect because 18 percent holding is too large a holding for him not to knock the doors of the court and say that this money has been used to kick me out of the board within companies where indirect holding is there.Latha: How does this battle end you think?A: It is a very difficult question. Poor shareholders and all these companies do not know which way to go, I am told there is already a suit which was filed on December 5 and Bombay High Court has asked a lot of other shareholders to join in if they want to join in on that. This whole thing is becoming uglier by the day. Better they sit down and defuse this whole situation for all the listed companies and shareholders and growth. At the end of the day, they should be looking at the growth rather than just taking a person out because the whole board -- according to me -- for the last one and a half months, I don’t think they are running companies, right now they are seeing whether Cyrus can be kicked out or not, is this the way listed companies in India should be working or the board will be working. It is a very difficult choice.