Hi Al,

I was going through todays moneycontrol article (source)

It talks about companies that have invested in equities, where the value of their equity investments (net of total debt) is greater than the market capitalisation of the investor company. That is, the value of equity investments per share is more than the current market price.

Is this the right way of investing in these companies?

What could be the reason of price of company like Bajaj holdings trading at 56% discount?

thanks in advance .

It is normal for investment companies to trade at 30%-50% discount to their net investment values.

the discount is for various reasons:

e.g.

1. there are costs associates with liquidation of assets.

company A may have own shares of company B worth Rs 100.

however if these shares are sold in the open market, there may be various costs associated with it like brokerage, STT etc.

company A may not recover full value of its holdings in company B.

2. taxes may also apply depending upon rules in that specific country.

in future, long term capital gains may also apply to such transactions done in India.

3. the minority shareholders in holding company don't have any control over companies in which the holding company has invested.

all control lies in the hand of the major shareholders of the holding company.

4. dividends get taxed more than once.

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In that case, does RoE or PE come out as the only option to invest in these (holding) companies? Coz it would reflect (apprx) PE of the companies invested in?
What would be the best way to assess Bajaj holdings as a stock?

Piyush,

If you don't mind, why are you interested in these holding / investment companies?

Alchemist has clearly pointed out what appear to be the drawbacks. And the discounts (to NAV) are not a temporary phenomenon. They've been there for a long, long time.