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NEW DELHI: India on Thursday revelled in Tata Motors' purchase of British luxury motoring icons Jaguar and Land Rover even as analysts warned the 2.3-billion-dollar buy could hit the firm's bottom line.
"Jaguar is now an Indian beast," said the Times of India as the country celebrated its new overseas corporate muscle in which firms are racing to gain a global footprint. "Indian Tiger rides Jaguar" declared the Economic Times.
But Tata Motors – part of giant Tata Group which last year staged India's biggest foreign takeover when it bought Britain's top steelmaker Corus for 13.7 billion dollars – faced a tough task in financing the buy, analysts said.
They also questioned if it would do better in plugging what was a financial sinkhole for struggling US Ford Motors which got less than half of what it paid for the two marques after investing billions to turn them around.
Investors gave a negative welcome to the purchase, driving down Tata Motors shares by 5.80 percent or 39.40 rupees to 651 rupees by mid-day.
"It's not the most auspicious time to take over the companies," said Aniket Mhatre, auto analyst at Mumbai brokerage Prabhudas Lilladher.
The first challenge will be financing the acquisition, analysts said, with Tata Motors, whose long-term credit is already rated one notch below investment grade, seeking to raise funds in a tough global climate with the US-led subprime crisis making investors shun all but the safest debt.
Debt and cash flow will "put pressure" on the balance sheet. The brands "are not profitable at the net level," said Vaishali Jajoo, analyst at Mumbai's Angel Broking, but added the purchase was expected to be beneficial long-term.
Tata Motors, India's top vehicle maker, will have to pump money into both brands for the next couple of years for promotion and research and development expenditure, she added.
Tata Motors plans to raise around four billion dollars 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 of the premium brands in a global economic downturn. "Due to the overall slump in US and European markets, both brands are going through tough times. Given this background, it will become very tough for Tata Motors to raise its sales," said investment advisor S.P. Tulsian, adding profits may "take a hit given the higher debt burden."
Jaguar sales dropped over 30 percent in the US and Europe in the first two months of 2008 year-on-year while Land Rover sales slipped 13 percent in the US and close to eight percent in Europe in the same period, analysts say.
Other analysts wondered whether high-end consumers will want to buy prestige cars made by an Indian firm. "There may be an image issue in the US," said Neil King, associate director at consulting firm Global Insight in London.
But on a longer term view, Chirag Shah, analyst at Mumbai's Emkay Securities, said Tata could make a huge technological leap and save years of development costs by acquiring the brands.
"They (the Tatas) – in fact the Indian auto players – don't have the technological capacity right now to match these global companies. They would be saving a lot of time and money by acquiring these brands," he said.
"If they (Tata Motors) want to move into the league of the VWs and the Audis, they need to make these kinds of investments," he added.
And said if anyone can succeed, analysts said it is the Tata Group, which has forged a reputation as turnaround specialists with other troubled buys.
"It's definitely a gutsy move that's typical Tata Group. If you've seen recent buys they're bold with an element of risk. There's a good chance as in the past they'll pull it off," added Hormazd Sorabjee, editor of Autocar India.
- AFP/so
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