The Hindu Business Line : Tata Motors stocks dive below rights issue price, hits 52-week low

Kolkata, Oct. 3 Tata Motors stock prices on Friday dipped below the rights issue price. The stock closed at Rs 330.70, below the rights price of Rs 340.

The stock saw the 52-week low of Rs 325 during the session.

The rights price was at a discount to the market price when it was announced.

Adverse factors

According to analysts, Tatas are committed to the declared rights price. But, negative developments, decline in sales growth and shift in Nano project location have taken its toll on the stock price.

Tata Motors reported total volume growth of 2.7 per cent in September against the corresponding figure. The growth was only on account of 23.4 per cent year-on-year jump in LCV sales. M&HCV sales were down 10 per cent and passenger car sales were lower by 3.2 per cent. Volumes for utility vehicles remained flat. Export growth was also muted at 2.5 per cent. During H1 FY09, the rise in total volumes for the company was disappointing at 1 per cent, said India Infoline in a note.

“Government initiatives of farm loan waiver and revision of pay scales in Sixth Pay Commission seem to have given a fillip to rural demand. However, outlook for four-wheelers continues to remain bleak with high interest rate scenario continuing till mid 2009. With inflation taking its toll on urban consumers, postponement of demand is a fair assumption,” it said.

According to Angel Broking, high interest rates and reduced finance by banks and NBFCs continues to hurt TML’s domestic commercial vehicles business. Further, lack of new launches in the passenger vehicle segment impacted TML’s overall volumes in FY2008 and 1HFY2009.

Issue deal

“We believe FY2009 would again be a difficult year for TML if India’s overall economic growth further slows down and the interest rate scenario does not improve,” it said.

Sliding stock markets and a steady decline in its share price had forced Tata Motors to change the structure of its rights issue. The issue was aimed at part financing its $2.3-billion acquisition of Jaguar-Land Rover early this year.

The company abandoned plans for issue of convertible preference shares. Instead, the company decided to raise the amount by divesting some of its investments, which is expected to continue for another six months or so.

However, the market prices of those investments have undergone downward revision in the recent weeks. The bulk of the divestments could be within the group.

The company had quoted investments of Rs 764 crore (market value of which when change in issue plans last month was declared was Rs 1,900 crore) and unquoted investments of Rs 4,145 crore at the end of FY2008.

Among the unquoted investments, Rs 600 crore is invested in Fiat India Automobiles Pvt Ltd, which cannot be sold. The other major unquoted investments include Tata Motors Finance, Tata Technologies, Telco Construction Equipment Company, TAL Manufacturing Solutions and Tata Daewoo Commercial Vehicle Company.

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