Rights issue hits Tata Motors stock

The markets had reacted negatively earlier too when Tata Motors had announced the acquisition of luxury brands of Jaguar and Land Rover in March, when the stock price had fallen to Rs 630.

The company yesterday announced that it would raise long-term capital funds of Rs 7,200 crore through three simultaneous but unlinked rights issues. Tata Motors estimated that the total equity capital would increase by about 30-35 per cent through the issue during the current financial year.

As a result, the incremental dividend on this increased capital would represent about 10 per cent of the company's net profit posted in the last financial year.

In addition, there may be a further increase of about 12 per cent in Tata Motors' equity capital between 2011 and 2013 due to the issue of convertible preference shares (CCPs) of up to Rs 3,000 crore.

"The rights issue has impacted negatively on the company's stock, which was expected by experts. However, the quantum of the drop in the stock price was more than expected and will remain at those levels or decrease even further, but chances of it rising upwards looks bleak," said a city-based auto analyst.

Although the company would be launching a variety of new models in the coming months, most launches will perhaps happen only in the second half of this financial year.

The ongoing slack season in automobile sales is further expected to impact the company's growth, whose models, such as the Indica, have been in existence for almost a decade.

Another city-based analyst said, "Most of the models of Tata Motors, including Nano, will only debut in the latter half of FY09. We are not expecting any robust performance from the company in terms of sales due to the lack of product excitement. There may not be any fresh buys on the company's stock for at least the next few days."