Tata Motors has been trying to raise funds by offering debt securities to retail investors. The public offering of debt securities if successful will reduce some liquidity problems which the company is facing because of the Jaguar Land Rover.
Tata Motors has appointed Tata Securities, Kotak Securities, and JM Financial as the authorised brokers for this offer know as "Tata Motors Fixed Deposit Scheme".
A retail investor will require to deposit a minimum amount of Rs 20,000 (and thereby in multiples of Rs 10,000) to participate in the scheme. The deposits for 1 year carry an interest rate of 10% p.a. For 2 years the interest rate is 10.50% p.a. and for 3 years it is 11.00% p.a. The income tax will be deducted at source from the amount of interest payable to the depositor in accordance with the provisions of the Income Tax Act, 1961 if it exceeds Rs.5,000 in a financial year.
Tata Motors has appointed Tata Securities, Kotak Securities, and JM Financial as the authorised brokers for this offer know as "Tata Motors Fixed Deposit Scheme".
A retail investor will require to deposit a minimum amount of Rs 20,000 (and thereby in multiples of Rs 10,000) to participate in the scheme. The deposits for 1 year carry an interest rate of 10% p.a. For 2 years the interest rate is 10.50% p.a. and for 3 years it is 11.00% p.a. The income tax will be deducted at source from the amount of interest payable to the depositor in accordance with the provisions of the Income Tax Act, 1961 if it exceeds Rs.5,000 in a financial year.Tata Motors has long term credit rating of AA+ and AAA for its debt instruments. It has made profits after tax of over 2000 crores in FY08.
| (Rs. in crores) | ||
| Year | Profit before tax | Profit after tax |
| 2007-08 | 2,576 | 2,029 |
| 2006-07 | 2,573 | 1,913 |
| 2005-06 | 2,053 | 1,529 |
Moreover, its leverage ratio is also not high. However, its debt/equity ratio has increased from 0.44 in FY04 to 0.7 in FY08. Still, Tata Motors has enough profits to easily service its debt. Its interest coverage ratio was 7.0 in FY08.
| Balance Sheet (Rs. in crores) | ||
| As at | As at | |
| Liabilities | 31.03.08 | 31.03.07 |
| Share Capital | 386 | 385 |
| Reserves & Surplus | 7,454 | 6,484 |
| Secured Loans | 2,462 | 2,022 |
| Unsecured Loans | 3,819 | 1,987 |
| Deferred Tax Liabilities | 976 | 787 |
| Current Liabilities | ||
| & Provision | 10,657 | 7,728 |
| Total | 25,752 | 19,394 |
| As at | As at | |
| Assets | 31.03.08 | 31.03.07 |
| Fixed Assets and | ||
| intangible Assets (Net) | 10452 | 6395 |
| Investments | 4910 | 2477 |
| Current Assets, Loans | ||
| and Advances | 10384 | 10512 |
| Misc. Expenditure | 6 | 10 |
| Total | 25752 | 19394 |
Though Tata Motors has strong fundamentals, the macroeconomic situation is adverse and its acquisition of JLR is adding extra burden on its performance. However, with a strong balance sheet and backup of the biggest group of India Tata Motors should be able to wither off these concerns and emerge out of this crisis.
This however doesn't eliminate the risk that in near future it may see its credit rating getting downgraded. Hence, the question: is the spread between interest rates offered in the scheme and risk free rate adequate enough to compensate for the risk. It is more favorable to Tata Motors as it has a very strong brand reputation and the risk free rates are on downward movement thereby increasing the spread and making the scheme a very attractive investment option.
This however doesn't eliminate the risk that in near future it may see its credit rating getting downgraded. Hence, the question: is the spread between interest rates offered in the scheme and risk free rate adequate enough to compensate for the risk. It is more favorable to Tata Motors as it has a very strong brand reputation and the risk free rates are on downward movement thereby increasing the spread and making the scheme a very attractive investment option.
Posts
No comments:
Post a Comment