Thursday May 29, 04:42 PM
Tata Motors shares trip on rights issues plan |
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By Rina Chandran
MUMBAI (Reuters) - Shares in Tata Motors fell more than 8 percent on Thursday on concerns about its proposal to raise $1.7 billion from rights issues to help fund its purchase of Ford Motor's Jaguar and Land Rover.
India's top truck and bus maker said on Wednesday it would raise 72 billion rupees from three rights issues comprising equity shares, "A" shares with limited voting rights and convertible preference shares to help fund the acquisition.
On completion of the rights issues, Tata Motors plans to raise a further $500-$600 million from an overseas equity issue.
If the rights issues are offered at a price of about 600 rupees per share -- a premium of 5.5 percent to Wednesday's closing price -- they would result in an equity dilution of 36 percent, estimates Kotak Securities.
Kotak on Thursday downgraded Tata Motors stock to "sell" and cut its 2008/09 earnings estimate by 12 percent and its 2009/10 estimate by 10 percent.
Shares in Tata Motors, which has a market worth of about $5.7 billion, fell as much as 8.6 percent to 580 rupees, its lowest level in more than four months, before ending at 582.55 rupees in a weak Mumbai market that closed down 1.3 percent.
"While we had factored a mix of debt and equity resources, the company has announced a predominantly equity route for its immediate funding needs," said Ramnath S, auto analyst at IDFC-SSKI Securities, which is maintaining its "neutral" rating.
The rights issues will lead to a dilution of 26 percent on the fully diluted equity capital over two years, he said.
IDFC-SSKI sees a downside of 21 percent to its earnings per share estimates for FY09 and FY10.
"Debt would have been cheaper than an all-equity route," said Vineet Hetamasaria at B&K Securities, which is advising clients against buying the stock.
"They are not that heavily leveraged, and could have taken some debt on their books instead of diluting equity," he said.
UNDER PRESSURE
The purchase of the Ford brands, which is expected to be completed by end-June, will give Tata Motors a range that includes the luxury marques as well as its own Nano, possibly the world's cheapest car.
But analysts see earnings of Jaguar and Land Rover under severe pressure for a few years, at least, while Tata Motors, like other vehicle makers in India, is facing higher commodity prices and softer demand because of firm interest rates.
Tata has said it expects the Jaguar and Land Rover deal to improve its balance sheet over the long term, but Moody's Investors Service said in April it was reviewing the company for a possible downgrade due to considerable integration challenges and the high uncertainty in the near to medium term.
"The rating outlook is likely to be negative upon the completion of Moody's rating review in Q2," S&P said at the time.
Tata Motors on Wednesday reported a net profit of 21.7 billion rupees for the year ended March, nearly flat from the previous year, and said it would spend about 100 billion rupees to expand capacity and develop new products to take on growing competition.
Its operating margins, a key gauge of profitability, fell to 10.76 percent from 12.5 percent a year earlier.
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