Mumbai: Indian funds took advantage of a 34% rise in the shares of Tata Motors in April to cut their holdings by 40% in the vehicle maker, which is facing pressing funding requirements and slowing sales.
Funds sold more than five million shares of Tata Motors in April, cutting their holdings to 1.7% of India’s leading vehicle maker from 2.82% a month earlier, data from mutual fund tracking firm ICRA Online shows.
Some funds from firms such as Birla Sun Life, Kotak, Reliance Capital and DSP BlackRock exited the stock, while those from IDFC and Sundaram BNP Paribas cut exposure.
Fund managers and analysts attribute the selling to profit taking after Tata Motors’ stock rose 34.4% in April, its biggest monthly rise since December 1998, and concerns over the firm’s cash flows, funding plan for capital expenditure and future debt composition.
The firm is also scrambling to refinance by early June bridge loans of $1.9 billion taken for last year’s purchase of the Jaguar and Land Rover (JLR) brands.
“The upside is limited because of risk associated with the firm on JLR front,” Vaishali Jajoo, a senior research analyst at Angel Broking said.
Demand in India for commercial vehicles remained weak in a slowing economy, and JLR’s key European and US markets have deteriorated and are expected to remain weak, she said.
Sales in India of trucks and buses slumped 26% in 2008/09 (April/March) and fell 11.3% in April from a year earlier, according to data from the Society of Indian Automobile Manufacturers (SIAM).
SIAM has forecast sales to rise 7 to 10% in 2009/10, but it said last month the recovery had not yet begun.
“Looking at all these things, the valuation looks expensive and that is one of the reasons why institutions might have reduced the exposure,” Jajoo said.
Still, funds look to have gotten out a little early. Tata Motors’s share price has risen 50% so far in May, helped by a 37% surge this week.
Tata Motors had $100 million of cash on its books at the end of 2008, and sources have said it plans to raise around $900 million in bonds this week.
It raised about Rs25 billion ($525 million) from advance bookings for its Nano, the world’s cheapest car, but that disappointed investors as it was only about half the collections analysts had expected.
“When every global automaker is in such a dire shape and you don’t know what exactly the base numbers are for fiscal 2009, I think it’s a big risk,” said an analyst, who asked not to be named as he was not authorised to comment on individual stocks.
“Fundamentally, Tata Motors is still not in very good shape given funding requirements for JLR, investment in Nano... plus their commercial vehicle segment is still in downturn,” he said.
Instead, firms such as Mahindra & Mahindra, Maruti Suzuki and Hero Honda, all of which attracted fund interest in April, would be better bets, the analyst said.