Tata Motors (TML) has approved the terms of its two simultaneous and unlinked Rights Issues.
As per the first one, Ordinary Shares will be issued on a Rights basis in the ratio of 1:6 at Rs340 per share with a face value of Rs10 each aggregating to Rs2,186 crore.
The other issue of ‘A’ Ordinary Shares would also be on a Rights basis in the ratio of 1:6 at Rs305 per share with a face value of Rs10 each aggregating to Rs1,961 crore.
Price of the Rights Issues (offered at a discount to the current market price) is in line with our estimates, and combined will result in 33.4% equity dilution.
High Interest rates and reduced finance by banks and NBFCs continues to hurt TML’s domestic commercial vehicles (CV) business.
Further, lack of new launches in the passenger vehicle (PV) segment impacted TML’s overall volumes in FY2008 and 1HFY2009.
We believe FY2009 would again be a difficult year for the company if India’s overall economic growth further slows down and the Interest rate scenario does not improve. We remain NEUTRAL on the stock.