Mumbai: India’s largest auto maker by sales, Tata Motors Ltd, has increased the size of its qualified institutional placement (QIP) by 43% to $750 million (Rs 3,327.75 crore), encouraged by the response of investors to the sale it launched on 1 October.
Tata Motors, which had earlier proposed raising $525 million in the QIP, will sell shares with differential voting rights (DVRs) and ordinary shares worth $550 million and $200 million, respectively, the company said in a statement on Monday.
The company intends to use the proceeds to reduce debt, fund capital expenditure and meet long-term working capital requirements, growth objectives and general corporate purposes, it said in a statement issued on 1 October.
With vehicles sales at its UK subsidiary Jaguar Land Rover (JLR) expanding, thereby improving cash flow, the QIP is expected to be the last sale of equity by Tata Motors in the near term, analysts say.
Tata Motors may not have to consider an equity issuance for the next two to three years, said Mahantesh Sabarad, senior vice-president of equity research at Fortune Equity Brokers Ltd.
Helped by a broad-based recovery in several of its key markets and new product launches, JLR sales expanded 46% in the five months ended August from the corresponding period of last year. Tata Motors has been raising funds at a steady clip to pay down debt it accumulated after the acquisition of JLR from Ford Motor Co. in 2008 for $2.4 billion.
But a major part of the funds raised in the QIP will likely go towards product development, said Vineet Hetamsaria, an analyst at Pinc Research, a subsidiary of Pioneer Investcorp Ltd. “With new emission norms kicking in in Europe, JLR has huge capital requirements,” he said.
JLR’s continued profitability, therefore, will be central to the company’s fund-raising plans.
The company’s consolidated net debt was Rs 19,983 crore as on 30 June 2010 and its debt-to-equity ratio was 1.96. After the QIP, the ratio is likely to improve to 1.5, said Hetamasaria.
Still, Tata Motors may have to borrow again to fund various requirements, meaning the ratio could rise, he said.
In order to fund the acquisition of JLR, Tata Motors made a rights issue in 2008. The rights issue comprised 64.3 million ordinary equity shares and as many DVR shares. The promoters’ ownership in Tata Motors has gone up 1.6 percentage points to 31.7% from 30.1%.
Since the end of March 2008, Tata Motors’ stock price has moved up from Rs 604 to Rs 1,140 now, and its market capitalization surged to Rs 69,692 crore from Rs 23,284 crore.
Tata Motors shares gained 3.85%, or Rs 42.30, to Rs 1,139.60 on Monday; the bellwether Sensex index added 30.69 points, or 0.15% to close at 20,475.73 points.
According to Fortune’s Sabarad, after the QIP, the company’s equity base would expand to 611.3 million shares from 427.8 million. The size of the QIP was increased to meet demand.
“As the equity issue is DVR-led, the investors are more confident,” said Ajay Sethia, an analyst at Centrum Broking Pvt. Ltd.
DVRs have one-tenth the voting rights and carry a higher dividend entitlement of 5% compared with ordinary equity shares.
Typically, DVRs are offered at a discount that could range up to 10% of market price.