The Hindu Business Line : Tata Motors climbs high as JLR gets fresh funds

Mumbai, Oct. 8 The infusion of fresh funds into Jaguar Land Rover pushed the Tata Motors’ share up by 5.35 per cent to a close of Rs 587 on Thursday. A day earlier, the company had announced that State Bank of India had okayed a loan of Rs 1,300 crore (£175 million) to JLR.

However, a section of market analysts have advocated caution to investors. “Any fund flow to JLR will have a positive impact on stocks,” said Mr Navin Matta, an analyst with Dolat Capital Market. “Last year, there was a fund crunch, though that issue is getting addressed now. Tatas have money to run the business and, in the future, may look at refinancing their high-cost debt. There is nothing much in terms of investment opportunity in this stock,” he said.

Debt still high

“We have recently upgraded the price of the stock to Rs 560 and it went beyond that. If it goes higher from here onwards, there should be a cautious approach,” said Ms Vaishali Jajoo, Senior Analyst, Angel Broking.

JLR has borrowed Rs 3,700 crore from the likes of Standard Chartered Bank, Bank of Baroda and Burdale Financial, a subsidiary of the Bank of Ireland. As part of the revival plan, Tata Motors recently announced a shutdown of one of the two West Midland plants by 2014 and cost-cutting initiatives.

“The new fund flow has eased the financial situation but the debt-equity ratio is still very high. The company’s debt is above Rs 30,000 crore,” Ms Jajoo added.

Bounce back

Mr S. Ramnath, Director Research, IDFC-SSKI, said JLR would bounce back to profitability next year. “We visited JLR dealers in the UK and got a good feedback. Tata Motors is probably the only company which continues to spend on R&D and revamp the JLR product portfolio during the recession,” he said.

According to him, this has resulted in improved footfalls. “Once there is an economic upswing, people will return to JLR. The negative growth is contracting month by month. We expect a 20 per cent fall in JLR volumes this fiscal and an eight per cent growth next year”.

In the UK, Land Rover sales rose 34 per cent (year-on-year) to 6,587 units in September, while Jaguar’s were down by 248 cars at 3,360 units.

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