Tata Motors: A long stretch ahead

 

The home market may be looking better, but JLR’s sales need to gather some momentum before Tata Motors problems are over

The first bit of good news at India’s biggest auto maker, Tata Motors, is that it has managed to re-finance the $3 billion that it had signed on to buy the Jaguar and Land Rover (JLR) business. Even if it was forced to sell its equity cheap for a song in a rights issue last September, the company has succeeded in finding lenders for another $2 billion, though the money may not have come cheap.

The other piece of good news is that the Indian economy seems to be on the mend and the management says things seem to be looking better with each month; apart from the heavy trucks for which there seem to be few takers even now, there are certainly more buyers now for the smaller trucks, like the Ace, than there were six months back. In fact, the company’s March 2008 sales numbers reflect the improvement — sales were down just under 23 per cent, compared with a fall of about 34 per cent in the December 2008 quarter.

However, raw material costs continue to hurt badly, resulting in some very weak operating profit number. Nevertheless, the company may have seen off the worst in the home market, even if takes a while to get back the momentum.

However, the story with JLR isn’t as encouraging ---the management says there’s been some pick-up in demand, though it’s still  a bit of a mixed picture, with some markets such as China and Russia looking up but others such as the Middle East in a slump. In fact, Tata Motors’ exports have slipped sharply because of poor demand in markets such as South Africa. 

The stock has almost doubled since the start of the year to the current levels of Rs 337 and has outperformed the benchmark indices by a wide mark. However, while the picture is not as bleak as it was in January, it’s not yet rosy, given that demand is yet to move up to pre -2008-09 levels, the high 1:1 net debt to equity ratio for the stand-alone company and a possible equity dilution somewhere along the way.