Tata Motors on Tuesday said it could be affected in future by the financial performance of Jaguar Land Rover, which incurred a loss of $383 million (around Rs 1,761 crore) between January and June this year.
"The financial performance of the company, including its profit margins and its operating ratios, may be affected in the future by the performance of Jaguar Land Rover," the company said in the prospectus for its proposed rights issue.
The company is raising Rs 4,145.81 crore through a rights issue to part fund the acquisition of JLR, which it completed in June this year for a consideration of $2.3 billion.
Tata Motors said JLR had incurred a loss of $383 million during January-June this year although its earnings before interest and taxes of $625 million during the period.
It also said any disruption of supply and transmission agreements entered into with Ford and other third parties for critical components and other services could have a material impact on the operations and financial positions of JLR.
Tata Motors and Ford had entered into long-term technology sharing for powertrain for JLR and engine supplies, besides other transitional agreements such as wholesale credit support to JLR dealers by Ford Motor Credit for up to 12 months. The financials of the two iconic brands may "materially differ" from the unaudited summarised statements of assets and liabilities as on December 31,2007.
The Indian auto major has said that the financial statements of JLR have been prepared on the basis of US GAAP according to which "all tangible and intangible assets and liabilities should be revalued at fair value in the opening balance sheet after the acquisition".
"This process has not yet been completed for JLR and therefore the financial statements of JLR going forward may materially differ," the prospectus said.
The company also said future pension expenses at JLR operations, based on actuarial assumptions, may prove costlier than the currently anticipated and the market value of assets in JLR's pension plans could decline.
In 2007, as part of the sale process, Ford entered into agreements with the trustees of the Jaguar Pension Plan (JPP), Jaguar Executive Pension Plan (JEPP) and the Land Rover Pension Scheme (LRPS), under which Ford agreed to contribute towards the deficits of the UK Pension Plans. Prior to this, the estimated deficits as on October 31, 2007, amounted £120 million for JPP, £9 million for JEPP and £115 million for LRPS.
However, as per the agreement reached between Ford and the trustees, Ford contributed a total of £301.5 million into the three UK pension plans prior to the acquisition.
Tata Motors said that the deficits in the UK Pension Plans may have changed since October 31, 2007 given market volatility and potential changes in the valuation factors.
No formal funding valuations have been carried out since then, either by the company, JLR or by the trustees, it said, adding the next formal funding valuations are scheduled for April 2009.
"In the event that the actuarially determined liabilities exceed the plans' assets at the time JLR would have to agree on new contributions with the trustees to fund the deficit over such period of time as is agreed," it said.
Higher contributions could have an adverse effect on the financial position of JLR, it added.