Jaguar offers tough ride for Tata Motors
March 28, 2008
By Penny MacRae
New Delhi - India yesterday revelled in Tata Motors' purchase of British luxury motoring icons Jaguar and Land Rover, even as analysts warned that the $2.3 billion (R18.5 billion) buy could hit the firm's bottom line.
But Tata Motors - part of the giant Tata Group, which last year staged India's biggest foreign takeover when it bought Britain's top steel maker Corus for $13.7 billion - faced a tough task in financing the buy, analysts said.
They questioned if it would do better in plugging what was a financial sinkhole for Ford Motors, which got less than half of what it paid for the two brands, after investing billions to turn them around.
Investors gave a negative welcome to the purchase, driving down Tata Motors shares by 5.8 percent by midday.
"It's not the most auspicious time to take over the companies," said Aniket Mhatre, an auto analyst at Mumbai brokerage Prabhudas Lilladher.
The first challenge would be financing the acquisition, analysts said, with Tata Motors, whose long-term credit was already rated one notch below investment grade, seeking to raise funds in a tough global climate with investors shunning all but the safest debt.
Tata Motors plans to raise about $4 billion to help fund the takeover as well as the manufacture of the world's cheapest car, the 2.500 Nano, which it unveiled in January.
Another big challenge will be to boost sales in a global economic downturn.
In the first two months of this year, Jaguar sales dropped more than 30 percent in the US and Europe, while Land Rover sales slipped 13 percent in the US and close to 8 percent in Europe, analysts said.
Other analysts wondered whether high-end consumers would want to buy prestige cars made by an Indian firm.
"There may be an image issue in the US," said Neil King, the associate director at consulting firm Global Insight in London.
On a long-term view, Chirag Shah, an analyst at Mumbai's Emkay Securities, said that Tata could make a huge technological leap and save years of development costs.
If anyone can succeed, analysts say it is the Tata Group, which has forged a reputation as a turnaround specialist with other troubled buys.
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