Cos’ Investments in Stocks worth more than their M-cap

About 60 cos have seen the value of their investments shoot up

The value of investment in listed securities of many companies gained significantly in the last quarter of fiscal 2011-12, thanks to a sharp recovery in equity markets. The increase in investment value will broaden companies' reserve base and boost balance sheet of firms with huge treasury operations. 

About 60 companies, including Grasim, Bajaj Holding, EID Parry, UB Holdings, Maharashtra Scooters, Ramco Industries, Gammon India and Binani Industries, have seen the value of their investment in listed securities surging past their market capitalisation. In many of them, the current market cap is less than half the market value of quoted equity. 

"Quoted investments are always given a discount as usually companies don't liquidate or use these investments to fund expansion plans or finance working capital," said Vinay Khattar, head of research, Edelweiss Financial Services. 

Usually, cash-rich companies don't sell their investments in group companies to fund their capex plans. They use fund from treasury income from shortterm investments rather than buying high cost debt for working capital or expansion, said experts. 

While shareholders of some of these companies may gain from higher dividend payouts, in general gains from such investments will not be passed on to shareholders and, hence, stock market discounts the factor that the value of investment in listed securities is higher than market cap. 

"In holding companies, the investments are strategic. Hence, the surge in the value of quoted investment is just a notional gain. Companies' balance sheet will benefit only when company books profit, in case of few companies with large treasury operations," said Gaurav Dua, head of research, Sharekhan. 

Several companies have seen their investment in listed securities gaining more than their net profits in the past 10 years. For instance, the current market value of quoted investment of Grasim Industries is nearly . 27,888 crore, which is 40% more than its 10-year net profit. The value of quoted investment has risen 28% since January 1, while its market cap has gone up by mere 8% during the period. 

The current value of quoted securities in companies such as ONGC, Adani Enterprises, JP Associates, Mahindra & Mahindra and Reliance Infrastructure is more than . 10,000 crore.