The Hindu Business Line : Tata Motors plummets 8% on equity dilution

“The announcement of the rights issue on Wednesday could be the main reason why the shares tanked at the bourses today. There are concerns regarding over equity dilution and also low pricing of the rights issue,” said Mr Anup Maheshwari, an auto analyst with KR Choksey Shares & Securities.

Rights issues

Tata Motors on Wednesday said that it would raise Rs 7,200 crore for the Land Rover-Jaguar joint venture through three separate rights issues. The first issue would consist of ordinary shares on a rights basis amounting to Rs 2,200 crore.

The second would raise up to Rs 2,000 crore through issue of “A” equity shares having one-vote for every 10 shares.

A further amount of Rs 3,000 crore is proposed to be raised through a third rights issue of five-year 0.5 per cent convertible preference shares, optionally convertible into “A” equity shares after three years; but, before five years from the date of allotment.

“This would mean that the joint venture would be funded mainly through equity capital. With this, now the capital base of the company would increase.

Investors feel that this will have a negative impact on the balance sheet of the company and the profits of the company,” said Mr Alex Mathew, Head- Research Centre at Geojit Financial services Ltd.

Weak results

Another reason for the plunge in the share price could be the fall in the fourth-quarter profits of the company, said analysts.

The net profit fell by 7 per cent compared with the corresponding quarter of the previous year, due to rising raw material costs and the fall in the demand of cars and also due to higher interest rates. The net profit for the year ended March 31, 2008, saw an increase of 6 per cent.

Tata Motors, though, wasn’t the only auto stock that took a beating on the bourses; in fact, the BSE-Auto index, on the whole, was the worst-performing index on the exchange today. The Auto index fell 3.31 per cent on Thursday; in the past one week, it fell almost by 6 per cent, against the Sensex’s 3.5 per cent drop.

Tata Motors, Mahindra & Mahindra and Maruti Suzuki were among the worst-performing stocks in the Sensex basket.

“The shares in the auto sector have seen a lot of selling for a while now. This can be attributed to rising inflation, crude oil prices and interest rates, which have led to a slump in the sales of vehicles,” said Mr Sanjay Someshwar, a sub-broker with Ventura Securities.

Fund category

The funds that have focussed on the auto sector have given a negative return of close to 4 per cent in the past one week. However, this compares well with the Auto Index, which fell by almost 6 per cent. .

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