The Hindu Business Line : Volatile Tata Motors ends flat on deal day

Mumbai, March 26 Shares of Tata Motors, the largest vehicle maker in the country, closed almost flat at Rs 679.40 on Wednesday. The details of the company’s acquisition of the UK car brands Jaguar and Land Rover, came after the trading hours.

The shares opened 1.47 per cent higher at Rs 690. By mid-day, the share fell by 5.65 per cent from its opening to hit an intra-day low of Rs 651.

The automaker’s scrip has outperformed the benchmark index, BSE Sensex, over the last month.

Tata Motors was down 3.23 per cent while the Sensex was down 9.66 per cent. Analysts say that this sort of volatility was expected in share prices before any major acquisition is announced.

“The same thing happened when the Tatas announced the Corus deal. The share price of Tata Steel took a bit of beating then. The same happened in the case of Tata Motors now due to the buzz about the deal in the markets.

People think such ventures would be a sort of a financial burden on the company in the short term,” said Mr Sanjay Someshwar, a sub-broker with Ventura Securities.

Investor fears

Brokers said that investors are apprehensive of the immediate positive impact of the acquisition on the earnings of Tata Motors, which is the reason for the volatility in the share price movement today. “In the short run, that is two to three years, there are some concerns regarding cash flow and dilution issues,” said Ms Vaishali Jajoo, an auto analyst with Angel Broking.

“Tata Motors will face challenges like debt repayments as the UK brands which it acquired are currently making losses. They will also incur quite a bit of Research and Development expenses. All this definitely will impact the earnings of the company in the short run,” said Piyush Parag, an auto analyst with Religare Enterprise.

“Another reason why the stock has been rather stagnant is because of the slow volume growth seen in the commercial vehicle segment. Cash flow concerns may also be taxing on the stock,” said Ms Jajoo.

On the other hand, with this acquisition, Tata Motors will be able to expand their presence in Europe say analysts. “Along with expanding their presence, Tata Motors will be foraying into the luxury car brand which will help in strengthening their portfolio,” added Mr Parag.

For the long term

The success of this deal would depend on how the Tatas would be able to turn around the net losses of these two brands to profits say analysts.

Brokers say that in the short run, there might be some concerns regarding cash flow but those investors who are looking at it from a long term perspective should hold on to it.

“We have a BUY recommendation pre deal; since the stock has taken such a bad hammering, valuations seem extremely attractive at current levels,” said Mr Parag.

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