Tata Sons decision to infuse Rs 6,500 crore into Tata Motors cheers investors

The company has derived some comfort in the improvement in its China business for the JLR brand.

Published: 29th October 2019 01:43 AM  |   Last Updated: 29th October 2019 11:07 AM   |  A+A-

Tata Motors

Tata Motors (File Photo | Reuters)

By Express News Service

India’s auto sector might be going through the worst slowdown it has seen over the last two decades, but Diwali Muharrat trading on Sunday saw Tata Motors Ltd. (TML) stock soaring 16.5 per cent following the promoters’ decision to infuse as much as Rs 6,494 crore into the company. Investor confidence in the company was also given a boost from the better-than-expected set of financials Tata Motors posted for the second quarter and an improvement in sales of Jaguar Landrover (JLR) in the Chinese market. 

Tata Motors pointed out that the industry-wide slowdown over the past few quarters has “significantly impacted volumes, profitability and cash flows and increased net debt to unsustainable levels”. It also said that though it remained optimistic on the medium to long-term growth in the Indian market, near-term demand situation has become fluid. “The slowdown has come at an inopportune time when capex intensity will remain high with continued focus on exciting products and BS-VI transition,” it noted. 

On the plus side, however, the company has derived some comfort in the improvement in its China business for the JLR brand. However, it did acknowledge that the overseas subsidiary faces risks from a slowing global economy, uncertainties arising from a looming Brexit, an escalating trade war between the US and China and disruptions from emerging ACES (autonomous, connectivity, electrification, and ridesharing) technologies. “We will require continued investments in products and technologies to drive growth,” it said. 

These factors have all played a part in the promoter company Tata Sons deciding to infuse nearly Rs 6,500 crore in the auto major. “Despite improving business fundamentals, these external risks in TML and JLR could impact our credit ratings and our ability to refinance competitively… After careful consideration, the preferential allotment to the promoter at a premium to the current market price was chosen to minimise dilution impact and for successful and speedy execution,” the company said. 

What is in the fine print?
The issue price for the ordinary shares and exercise price for warrants has been fixed at approximately Rs 150 per share, an almost  11% premium to the stock’s last 5-day average closing price. Consequently, the Group’s shareholding (voting) will increase from 37.71% to 41.71% on the allotment of ordinary shares, and up to 45.71% post warrants. 


Disclaimer : We respect your thoughts and views! But we need to be judicious while moderating your comments. All the comments will be moderated by the newindianexpress.com editorial. Abstain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks. Try to avoid outside hyperlinks inside the comment. Help us delete comments that do not follow these guidelines.

The views expressed in comments published on newindianexpress.com are those of the comment writers alone. They do not represent the views or opinions of newindianexpress.com or its staff, nor do they represent the views or opinions of The New Indian Express Group, or any entity of, or affiliated with, The New Indian Express Group. newindianexpress.com reserves the right to take any or all comments down at any time.

flipboard facebook twitter whatsapp