What makes Maharastra Scooters an interesting buy?

About Maharashtra Scooters:

The Company, which was incorporated on 11th June, 1975, started manufacture of "Priya" brand of motorised geared scooters from 13th August, 1976, in technical know-how / collaboration with erstwhile BAL. Subsequently, the Company started manufacture of "Bajaj Super" / "Bajaj Chetak" models of scooters and with the gradual shift in consumer preferences from geared scooters to the motorcycles, the Company discontinued production of geared scooters effective 1st April, 2006. The manufacturing activity of the Company is currently restricted to the manufacture of pressure die casting dies, jigs and fixtures, primarily meant for two and three - wheeler industry.

Let's take a quick glance at Maharastra Scooters ltd. non-current holdings, the part that makes it an interesting buy.

This is how the valuation of Maharastra Scooters ltd. looks like as per the market value of its holdings in Bajaj Groups : (valuation in cr.)

Our no-brainer analysis values Maharastra Scooters at 24,865 cr (approx.). The current market cap is 4,749 cr. On the contrary, even after giving a 50% discount (24,865-50%), it leaves us with 12,432.5 cr. which means if value and price converge there is a chance for more than 100% gain.

And it's not quite the right valuation, why? Because Bajaj Holdings is itself trading at a discount.

Is it enough just looking at holdings? Of Course not. There are a few factors to be checked in deciding on good holding companies such as,( Dividend distribution, Promoters Holdings, Advances, etc)

Let's look at each factor individually.

Here is the cash flow statement of Maharastra Scooters ltd. as of 31/03/2022. Here I'm using screener.in

As you can see, Cash Flow from Financing Activity company is paying dividends to its shareholders.

let's take a look at advances in the balance sheet, there is no such red flag. This requires your attention because most holdings companies do not have any business of their own they receive cash flow from their holdings, instead of re-investing and giving dividends to their shareholders the cash is being used to provide advances to bad-quality businesses or loss-making businesses.

Now, it's time to check the promoter's holdings;

The promoter's holding is also satisfying. ( the entire 51% holdings are held by Bajaj Holding Investments Ltd.)

Disclaimer & Rationale: Once I was reading an Annual letter from Berkshire Hathway Inc. Though it was a very common sense it just amazed me how Warren Buffet used it in investing. I cannot recall the exact sentence but as I remember it, "you cannot become rich by exchanging 10- 10s' of $10 for $100. When one invests in a company he should look for the value he is getting and the price he is willing to pay for it.

When we value a company one cannot make money just by merely valuing the company, he has to have faith and conviction that sooner or later the market will recognize the value, and price and value will converge. But patience to wait for the conviction to come true has its own opportunity cost. What can we do? I was once reading The Dhandho Investor by Mohnish Parabai. In his book, he put stress on this particular situation, according to him one can wait up to 3 years for that value and price to converge. Since the deviation between value and price is more than 100%, even if it takes 3 years to converge one can still have a chance to gain approx. 25% CAGR, and in my opinion, it's not a bad return.