Tata Motors dips 3% on heavy volumes; stock down 13% so far in September

TML Securities Trust sold 11.5 million new ordinary shares on the stock exchanges today for the purpose of distribution of fractional share entitlement as well as towards tax liabilities.

Shares of Tata Motors dipped 3 per cent to Rs 960.65 on the National Stock Exchange (NSE) in Tuesday’s intra-day trade amid heavy volumes.

Till 12:36 PM, a combined 39.9 million shares, representing 1.08 per cent equity of Tata Motors, had changed hands on the NSE (34.8 million shares) and BSE (5.09 million shares), exchange data showed.

Thus far in the month of September, Tata Motors has underperformed the market by falling 13 per cent. In comparison, the Nifty 50 has gained 0.74 per cent during the period, while the Nifty Auto has declined1.5 per cent.

Tata Motors, in an exchange filing today, informed that in terms of the scheme as well as trust deed, TML Securities Trust, has sold 11.5 million new ordinary shares (NOS) on the bourses today for the purpose of distributing fractional share entitlement as well as towards tax liabilities, as per the Scheme.

 

“The aforesaid intimation has been communicated to us today by Axis Trustee Services Limited, the Independent Trustee, which will now proceed to distribute sale proceeds in cash to the eligible ‘A’ Ordinary Shareholders and credit the balance NOS as per entitlement to their respective demat accounts, shortly,” Tata Motors said.

The company will intimate the ‘A’ ordinary shareholders individually as well as to the stock exchanges upon the distribution of cash as well as credit of NOS, it added.

Tata Motor’s board, at its meeting held on July 25, 2023, had approved a scheme of arrangement of the company and its shareholders and creditors.

The scheme provided for a reduction of capital through cancellation of the ‘A’ Ordinary Shares and the consequent issuance and allotment of the ordinary shares, as consideration other than cash for such reduction.

The consideration payable was pegged at seven new ordinary shares for every 10 ‘A’ ordinary shares cancelled (capital reduction consideration), the company had informed earlier.

Tata Motors had said the implementation of the scheme would simplify and consolidate the company’s capital structure as well as preserve liquidity for its growth. Apart from that, it would also be value accretive and beneficial for the shareholders of the company as it would allow the ‘A’ ordinary shareholders and ordinary shareholders to continue to participate in the company’s performance as ordinary shareholders.

Last week, international brokerage UBS had maintained its ‘sell’ rating on Tata Motors’ stock with a sum of the parts (SOTP)-based price target of Rs 825 per share. The brokerage expects further downside risk for the company from margin slippage at Jaguar Land Rover (JLR) and within Indian passenger vehicles (PVs), especially the company's electric vehicle (EV) arm.

Consolidated sales were mixed for JLR in FY24, accounting for around 69 per cent, while India commercial vehicle and passenger vehicles (PV), accounted for around a combined sales of 30 per cent.

According to analysts at UBS, key downside risks for Tata Motors include a sharp appreciation of the British pound versus the US$/Rmb, a sharp slowdown or decline in China’s sales of JLR for regulatory or economic reasons, and an inability to refinance debt and turn around the India business.

A sharper recovery in global premium markets, JLR’s outperformance in China, strong cost controls driving a margin beat for JLR, a stronger and quicker recovery in freight demand driving higher truck sales, and the emergence of a global partner for the India PV business are key upside risks, the brokerage noted.

However, Tata Motors, in its FY24 annual report, said with promising GDP growth outlook, incentives from government to improve productivity in both manufacturing and agriculture sectors, and continuing focus on infra, demand for commercial vehicles (CVs) is expected to improve from H2FY25 (October to March).

The company's management said they remain cautiously optimistic about domestic demand while keeping a close watch on geopolitical developments, interest rates, fuel prices and inflation.

Tata Motors will continue to deliver strong earnings before interest, taxes, depreciation and amortisation (Ebitda) performance and focus on net cash will continue, it said.

The management hopes to deliver strong growth for PVs in FY25 as it aims to capitalises on new product launches, sustain an aggressive multi-powertrain strategy and drive actions to improve profitability.

In FY25, the management expects the PV industry demand to moderate as a result of a high-base effect, easing of pent-up demand and higher channel inventory at the beginning of the year.

“We expect the EV industry to grow rapidly, as we continue to see an upward trend in customer demand for EVs. In FY25, we expect a substantial number of new EV launches, which will drive growth for the industry.

"Furthermore, we expect the EV ecosystem to grow comprehensively, supporting the growth in demand,” Tata Motors said.

“We expect premium luxury segment demand to be resilient despite emerging concerns on overall demand. We expect EBIT margins in FY25 to be around the FY24 level. We anticipate a modest increase in investment spend to £3.5 billion but still expect to become net-debt zero during FY25,” the company said.