DVR shares are shares that are listed in the stock market. But many investors and traders don’t actually know what they mean. Hence there is a lot less participation in these shares. The full form of DVR shares is Differential Voting Rights (DVR) Shares.
DVR shares can be of great value if you understand them correctly. No need to worry since we are here to help you understand what DVR shares are and how you can use them to your advantage.
DVR shares are legally traded shares on the Exchange which retail investors can also buy. But, What are DVR Shares? The full form of DVR is Differential Voting Rights. The DVR shares are issued by the same company that issues ordinary shares, but where ordinary shareholders get One vote for each share, DVR shareholders get different(higher or lower) voting rights than ordinary shares. Hence the name, Differential Voting Rights Shares.
So what really are the advantages of these shares? Are they really worth that much? How can you use them to your advantage? What is the need for these shares? All these questions will be answered in this post.
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- 1 What is DVR shares?
- 2 Advantages of DVR shares for investors:
- 3 Disadvantages of DVR shares for investor:
- 4 Advantages of DVR shares for Issuer:
- 5 Disadvantages of DVR shares for Issuer:
- 6 List of Companies with DVR shares
- 7 What is Tata Motors DVR?
- 8 Comparing DVR shares with Ordinary shares, check out the charts below:
- 9 Should I buy Tata Motors DVR?
When a company issues an IPO, the company issues Ordinary shares to the public. Ordinary shares have 1 vote for 1 share that a shareholder holds.
When a Company issues Ordinary shares, the promoters give up part ownership of their company via shares issued. So promoters who want to raise capital but want to avoid any hostile takeovers can issue DVR shares.
DVR shares are shares issued by the company with Differential Voting Rights. Any company issues these shares when the company feels that there is a need to raise capital, but the company promoters don’t want to dilute their power.
Since DVR shares give different voting rights to shareholders, these DVR shares are usually offered at a discount than ordinary shares. In India, Indian Laws don’t allow for DVR shareholders to have more voting rights than ordinary shareholders. So, in India the voting rights of DVR shares are fewer than Ordinary shares.
DVR shareholders receive Dividends also. In fact, their Dividend Yield is higher than the ordinary share Dividend yield. For eg. If a company share price is Rs. 100 and its DVR share price is 70, and the company declares a dividend of Rs. 10 per share, then the dividend yield of the ordinary share will be 10% and that of DVR share will be 14.28%.
So DVR shareholders enjoy a higher rate of Dividend yield than ordinary shareholders.
DVR shares are traded on the exchanges as ordinary shares. You can buy or sell these shares like any other share through your broker.
So who issues these shares? The Company issues these shares. These shares are different than Ordinary shares ONLY because of Voting rights.
Now you must be wondering that if these DVR shares are at a price lesser than ordinary shares, and are issued by the same company then it is better to buy these shares than ordinary shares, Right? Before you make that decision, let’s check out the advantages and disadvantages of DVR shares for investors.
- DVR shares are priced at a discount than ordinary shares.
- Dividend is also given to DVR shareholders. Since the price is less than ordinary shares, Dividend yield is higher.
- If the investor has trust in company promoters, and wants to gain the same returns as ordinary shares by investing less money, then DVR shares are ideal.
- Fewer voting rights for DVR shareholders.
- Since DVR has no voting rights, DVR shareholders cannot influence company decisions.
- Issues of Corporate Governance if Promoter/Management is not trustworthy. Some wrong decisions may be taken by Promoter/management causing harm to investors.
- Issuer can raise capital without giving up control of their company.
- No hostile takeover of company.
- Complete control over company without any interference.
- Since no voting rights for DVR shares, PE investors, Institutional Investors might not invest in these shares.
- Retail investors may not understand DVR shares and hence may not invest.
In India there are a few companies that have listed DVR shares in the stock market.
Here is the list of Companies with DVR shares listed in stock market as per SEBI.
- Tata Motors DVR
- Pantaloons Retails (Now Future Enterprises Ltd)
- Gujarat NRE Coke Ltd
- Jain Irrigation Ltd.
These four companies have listed their DVR shares in the stock market.
What is Tata Motors DVR?
Tata Motors is a Tata Group company in the business of making Passenger vehicles and Commercial vehicles. Tata Motors was formerly known as Telco and was established in 1945. Tata Motors is the first Indian manufacturer to achieve the capability of developing a competitive indigenous automobile.
Tata Motors listed on the NSE on 22 July 1998. Since its listing, Tata Motors has given tremendous returns for its shareholders in terms of share appreciation and Dividends.
In the year 2008, Ford was financially unstable. Ford owned Jaguar Land-Rover and was struggling financially to keep it running. Tata Motors bought Jaguar Land-Rover from Ford in 2008.
To fund the take over of Jaguar and Land-Rover, Tata Motors wanted to raise capital. So instead of taking on debt from banks or other ventures, Tata Motors chose to list its DVR shares. With the listing of DVR shares, Tata Motors was able to raise the required capital to buy Jaguar Land-Rover and also keep its Power without the Promoter diluting its shares.
Tata Motors DVR was listed on NSE on 5 November 2008. Tata Motors DVR shares have a 1/10th voting right for each share. So if a person has 10 shares, he will have the right to 1 vote during voting.
(This is not investment advice. This is just for educational purposes. Investors are advised to consult their financial advisors for investment picks.)
For more information on DVR shares and their issuance, Click here to Visit the SBI Website
Should I buy Tata Motors DVR?
Tata Motors DVR is currently trading at around 135 levels which is at a discount of almost 50%. Tata Motors is trading at around 277 as of 24 August 2021.
Also in the US, The DVR shares trade at almost the same price as Ordinary shares. Since DVR shares are not well known in India, they still trade at a 30-50% discount of its Ordinary share price.
When Tata Motors DVR shares were issued in 2008, the Rights issue was undersubscribed. The unsubscribed shares were bought by the Promoter company. It was undersubscribed since DVR shares are not popular and well understood in India.
So if DVR shares are fully understood by Indian Investors, then this discount will disappear. Hence there is potential, but this potential will only be realized if DVR shares are understood by Indian investors.
Another point to note is you can buy shares of the company and ride on its performance at almost 50% less value than ordinary shares and enjoy better dividend yields if the dividend is distributed.
But this decision of investing is solely dependent on you. We in no way endorse buying these shares. Any decision you make should be consulted with your financial advisor.
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