JLR hits Tata Motors on BSE

The stock falls 7% to touch its intraday lowest of Rs 630.

Concerns over funding the purchase of Jaguar and Land Rover (JLR) played the spoilsport and Tata Motors stock nosedived 7 per cent to reach the day's low of Rs 630 on the Bombay Stock Exchange (BSE).

The Sensex stock, however, improved marginally later in the day only to close at Rs 655, still down by 3.56 per cent. The company's stock had opened at Rs 677.

TATA STOCKS POST GLOBAL BUYS

TATA STEEL-CORUS: Acquires Corus on January 31, 2007, for $14 billion. On February 1, the stock rises 5.85% to Rs 776.45 from the previous day's close of Rs 733.50

TATA TEA-TETLEY: Acquires the Tetley Group in February 26, 2000, for £271 million. The scrip rises 2.85% to Rs 540 on February 28, 2000, from the previous close of Rs 525

TATA CHEM-GENERAL INDUSTRIAL PRODUCTS: Buys the soda ash business of General Industrial Products for $1 billion on February 1, 2008. On February 2, the company's scrip rises 6.19% to Rs 310.14 from the previous day's close of Rs 292.05

Experts attribute the fall to funding woes of the mega deal as Tata Motors had refused to furnish details of their financing plans. The company has managed to arrange for $3 billion in bridge loans of which $2.3 billion will be used to buy the two iconic British brands. The rest will mainly be used as working capital.

Religare Enterprise's auto analyst Piyush Parag said, "The JLR deal is demanding a big capital expenditure from Tata Motors, which means lots of funds are going out from the company. We are expecting the earning per share (EPS) of Tata Motors to drop by 18 per cent in FY09 and by 12 per cent in FY10."

The actual funding pattern is not disclosed by the company as it is still unclear as to how much of the $3 billion will be converted into debt and how much into equity. Market players are expecting the stock prices to stabilise after an announcement to this effect. But for the investor, they said, the fall is a good opportunity to buy into the company.

The general sentiment among auto experts is that although Tata Motors has managed to win over the Ford management and workers union to effectively bag the deal, the company may not be able to fund the research and development (R&D) expenses required for both the brands.

According to international reports, both the brands demand an annual infusion of Rs 4,000 crore for R&D. At present, Tata Motors spends only Rs 700 crore on R&D, annually.

Besides, both brands need to venture into newer markets to sustain growth. Tata Motors may find this difficult as they have limited expertise and knowledge of operating in the fiercely competitive international luxury car market, said experts.

Of the two, Land Rover is doing brisk business and is expected to recover from losses in FY09. However, Jaguar is expected to take a longer time to break even.