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Tata Motors in a vortex of debt

Tata Motors in a vortex of debt
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First Published: Fri, Jan 30 2009. 10 58 PM IST

Updated: Fri, Jan 30 2009. 10 58 PM IST
The loss of Rs193 crore before tax and exceptional items posted by Tata Motors Ltd is the highest the company has ever reported in a quarter.
At the peak of the downturn in 2000-01, Tata Motors had reported a loss of Rs158 crore in the September quarter of that fiscal year.
Actually, adjusted for the Rs47.8 crore profit it made by divesting its stake in Tata Tele Services Ltd, the loss is as high as Rs240 crore.
This is excluding the mark-to-market loss the company incurred on account of foreign currency fluctuations.
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Consensus estimates of analysts suggested that there would be sharp fall in profit, but didn’t predict any loss. But some analysts and market experts had anticipated a loss, mainly owing to the 60%-plus fall in the medium and heavy commercial vehicles business and the company’s mounting debt burden.
The medium and heavy commercial vehicles segment is the primary profit generator for the company and the lower utilization in the segment seems to have hurt it badly.
The company’s losses come at a time when it has continued to spend about Rs900-1,000 crore on capital expenditure for its Indian operations. Besides, there would be working capital needs as well.
With no internal cash generation, this has been funded through debt. Just in the last quarter, Tata Motors’ debt (excluding debt related to the Jaguar-Land Rover (JLR) acquisition) has risen by Rs2,400 crore to Rs13,600 crore. No wonder the company’s interest cost has swelled by 83% on a year-on-year basis to Rs168 crore.
The outlook for profits in the near future is far from bright—the write-off on account of the Nano plant relocation is still pending and once the Nano plant gets operational, it will have its own set of losses.
The company said it won’t report JLR numbers until after the March quarter, but the situation there is expected to be similar.
Vehicle sales fell by 35% in the December quarter, which is likely to result in cash losses at the firm.
The company management has admitted that the working capital needs of JLR have risen compared with those at the time of acquisition, necessitating fresh loans by the luxury car maker.
This, at a time when Tata Motors has been able to pay back only one-third of its $3 billion (Rs14,700 crore) bridge loan it had taken to finance the JLR acquisition. Thanks to the rupee depreciation, its rupee liability on this account has risen by about 20%.
The company seems to be getting sucked into a vortex of debt liabilities, and concerns surrounding this are reflected to an extent in its shares as well as credit rating. But if one were to believe those who predicted its quarterly loss beforehand, much worse is in store.
It has decided to scale down its capital expenditure, but thanks to its commitment to the Nano project and JLR, its fund requirement will continue to be huge for some time to come.
With precious little in terms of internal cash flow, the consolidated debt of the company, about Rs25,000 crore, has attained scary levels.
Write to us at marktomarket@livemint.com
Graphics by Ahmed Raza Khan / Mint
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First Published: Fri, Jan 30 2009. 10 58 PM IST