Business Daily from THE HINDU group of publications
Tuesday, Jul 31, 2007
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Business Daily from THE HINDU group of publications Tuesday, Jul 31, 2007 ePaper |
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Corporate
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Mergers & Acquisitions
“Their decision to enter the most high-end segment does not seem a strategic move, as managing the brands would be a major task”
Priyanka Vyas New Delhi, July 30 Though Tata Motors and Mahindra & Mahindra’s bid for premium brands Land Rover and Jaguar may be generating a lot of interest, there is skepticism among industry watchers on the challenges that the deal could pose. Industry analysts from blue chip security firms and brokerage houses have expressed concern on the decision of both players to bid for the US automaker Ford’s premium brands. “Both Tata Motors and Mahindra have yet to establish themselves in the premium segment in the domestic market. So their decision to enter the most high-end segment does not seem a strategic move, as managing the brands would be a major task,” said an auto sector analyst from a multinational security firm. High capex
Experts also expressed reservations about the high capital expenditure that both the players have already set for themselves. “Tata Motors’ capex is about Rs 12,000 crore and Mahindra has announced Rs 5,000 crore spread over three-four years. These would not be internally sustainable and would require the support of their group companies,” said an analyst from a Mumbai-based brokerage firm. Further, the fact that Ford itself has not been able to turnaround the brands makes it a daunting task for both the domestic players. “Ford itself has not been able to make profits from it. Further, the stringent conditions that Ford has laid down, including not allowing the bidders to shift production for the next five years, would further make it difficult for either of the two companies to cut losses and revive the venture,” said a market analyst from BKSI. Diversifying from the existing segment is also being viewed as a drawback for the two bidders. “Unlike Ford that had a commonality in platform with Land Rover and Jaguar models, Tata Motors and Mahindra may not be able to leverage either on common components or platform to build a similar range of models. While for Ford, inclusion of such brands enriches its product portfolio, in the case of the two domestic auto majors leapfrogging into the premium segment seems a challenging move,” said an analyst from a brokerage firm.
Related Stories: More Stories on : Mergers & Acquisitions | Mahindra & Mahindra Ltd | Tata Motors Ltd | Cars
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