Even before Tata Motors bought Jaguar and Land Rover from Ford, the Indian automaker's investors were not well pleased at the prospect. A dropping share price reflected their central worry: $3b or so in debt. These worries are proving well founded. Tata has announced a $1.86b equity share offering. The stock offering amounts to a 30 to 35 percent increase in equity capital; investors are heading for the hills rather than watch their shares take the hit. "The magnitude of this offering is unexpected and could adversely affect short to medium-term stock performance," Citi analyst Jamshid Dadabhoy tells the Detroit News. Amit Agarwal of Kotak Securities tells Market Watch that servicing all the extra debt could cost Tata 19 to 22 percent of its earnings per share. Meanwhile, Jaguar and Land Rover need considerable investment to develop the products needed for profitability, and Tata has yet to build its much-vaunted Nano. Tough times.
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“I don’t get no respect.”
Welcome to the big leagues, Ratan.
I think the Indian Stock Exchange is much like the NYSE in that traders are concerned more with the short-term view rather than long-term value.
The personal car market is at its nascent and Tata practically stole Jaguar and Land Rover (and Rover, Daimler and Lanchester) for a mere $2.3B. Tata is not some two bit player in the market and there is a lot of wealth and wealth-building in India at the moment. The potential for home sales is huge and their low labor rates mean they can competitively build for export.
$3 billion in debt is nothing. Heck, it’s 3 months of business-as-usual at GM.