Battered Shares Amid Tata Turmoil Seen as Buying Opportunity

(Bloomberg) -- The turmoil that knocked Tata Group’s key Indian units from multi-year highs is being seen by some investors as a chance to snap up shares.

Tata Group companies have lost at least $3.3 billion in market value since Monday when Chairman Cyrus Mistry was abruptly replaced by his predecessor Ratan Tata. Tata Steel Ltd. has retreated more than 7 percent from last week when it reached a December 2014 high, while Indian Hotels Co. is set for its worst week since August 2013.

“The fall in Indian Hotels and Tata Steel shares is overdone and we are buying this fall,” Chakri Lokapriya, Mumbai-based managing director at TCG Advisory Services, which manages about $3 billion, said by phone. “The outlook for the stocks continues to remain what it was before the whole saga broke out.”

Foreign investors are weighing the dramatic events gripping India’s biggest conglomerate whose 29 publicly traded units hold significant sway on Asia’s fourth-largest stock market. The benchmark S&P BSE Sensex last month approached a record high on surging foreign inflows amid growing confidence in Prime Minister Narendra Modi’s management of the world’s fastest-growing major economy.

Tata Steel fell 1.8 percent in Mumbai trading on Thursday, bringing a five-day slump to 8.4 percent. The stock is trading at the lowest forward price-earnings ratio in a year. Indian Hotels tumbled 4.1 percent, taking the week’s loss to 13.5 percent, and its earnings multiple to the lowest since November 2015. Tata Motors Ltd.’s valuation slid to a two-month low, while Tata Global Beverages Ltd.’s has declined from near two-year highs. 

“As the dust settles, the long-term shareholder interests will be protected,” said Neelesh Surana, head of equities at Mirae Asset Global Investments India Pvt. in Mumbai, whose Mirae Asset India Opportunities Fund beat 92 percent of peers with a 19 percent return over five years. The firm isn’t changing its investment strategy. “We do have some exposure to Tata Group companies and are holding the same. Any further correction could provide a buying opportunity.”

Share Overhang

Mistry, who has been chairman for almost four years, had pushed for a makeover to turn Tata Group into a more prudent enterprise. In recent years, the conglomerate refinanced loans and sold assets to help tackle debt levels that had bloated to more than $30 billion. He accused directors of wrongfully dismissing him and warned that the group may face 1.18 trillion rupees ($18 billion) in writedowns because of five unprofitable businesses he inherited, according to an e-mail to the group’s board.

“Each Tata entity has a strong management team to oversee the strategic direction and day-to-day operation of the company,” Angie Tan, portfolio manager at Affin Hwang Asset Management Bhd., said by e-mail. “However, this uncertainty will be an overhang for the stock prices of the listed entities until a new chairman is found. While this may present a buying opportunity, it will be better to wait for more clarity.”

The group’s efforts to pare down assets may stumble following the leadership change, according to Sridhar Sivaram, investment director at Mumbai-based family office Enam Holdings Pvt.

“I’m not a believer when people say that it will be business as usual in the interim period until Mistry’s replacement is found,” he said. Tata’s four big companies “continue to be cash-guzzlers and still have legacy assets on their books that need to be sold.”

Sandy Mehta, Hong Kong-based chief executive officer of Value Investment Principals Ltd., said he would consider buying “if any overreaction selloff presents a value investment opportunity.”

Given’s Ratan Tata’s vast experience and his ability to prove his detractors wrong, the Tata Group will survive through this, he said.

“While the entire episode makes for big headlines and speculation, I think it will be sorted out pretty quickly,” he said. “The Tata Group companies will endure.”

--With assistance from Rajhkumar K Shaaw Jonathan Burgos and Choong En Han

To contact the reporters on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net, Heejin Kim in Seoul at hkim579@bloomberg.net.

To contact the editors responsible for this story: Jeff Sutherland at jsutherlan13@bloomberg.net, Chan Tien Hin, Ravil Shirodkar