Tata Motors impaired assets in its Jaguar Land Rover unit by Rs. 28,000 crores due to an aggressive acquisition price paid for Jaguar. While Tata is known for its high quality management, it appears the acquisition was based on unrealistic projections and assumptions that led the competent Tata board to overpay. The author also expresses skepticism about Tata's recent acquisition of Bhushan Steel for Rs. 39,000 crores, arguing the price paid per ton of steel capacity is too high and will be challenging for Tata to manage.

1. Acquire and Impair – Case of Tata’s
By Ajay Bhat Monnet Ispat

2. The impairment of assets to the tune of
Rs. 28000 crores or USD 4 billion by
Tata Motors in Jaguar, Land Rover Unit
manifests aggressive call taken by Tata
Motors at the time of acquisition of
Jaguar. Impairment of asset is nothing
but over capitalized balance sheet and
the value of impairment reflects the
value of worthless assets. It is hard to
believe that a high quality management
of Tata would have taken such a poor
decision by paying incredibly high price
for an asset, which warranted such a
deep haircut. Tata management would
have employed competent investment
bankers for valuations and

3. due diligence but it appears
that the aggregate efforts of
all the concerned were based
on hypothetical assumptions
and projections, which led a
very competent Tata board to
such poor decision.
When we see impairment of assets by a management with moderate reputation,
eyebrows are raised about the past decisions and management of financial affairs and
such decisions are generally not welcomed by public, however here is a case of Tata’s. In
spite of such a huge impairment their brand and management quality is certainty going to
overlook their past imperfect decisions. This is least expected from brand Tata House.

4. Acquisition of Bhushan Steel by Tata’s
My opinion about another acquisition by Tata’s recently in Bhushan Steel is equally
froth with consequences. Tata’s paid an aggregate amount of close to Rs. 39000
crores for acquiring a 5 million ton steel plant of Bhushan’s. The capacity is doubted
not more than 4.5 million tons actually.

5. It translates a cost of Rs. 8000 crores per
million ton of steel, which is an aggressive
price to pay for a steel plant. The
appropriate price per million ton in the
current scenario of steel is not warranted
more than Rs. 5000 crores per million ton.
Therefore there is an excess capitalization
to the tune of Rs. 15000 crores. Even if one
assumes a strategic premium of Rs. 1000
crores per million ton translating into an
aggregate pricing of Rs. 6000 crores per
million ton, still the price is higher by about
Rs. 10000 crores.
Such aggressive pricing and capitalization of Bhushan Steel by Tata’s will remain a real
challenge to manage the company by Tata’s. Let us see how it unfolds.
Hole punch History

6. ajaybhat.in
Also read - Essence Of Corporate Leaders
&
Promoter Leadership Vs Professional Leadership

7. News Publications
o Verdict On Coal Block Allocation To Impact Bottom Line: Ajay Bhat Monnet Ispat On NDTV
o Is India on the road to economic recovery? -
o Monnet Ispat eyes Rs 3500cr turnover in FY14, says CFO Ajay Bhat Monnet Ispat
o Current board of directors to be disbanded: Ajay Bhat, Advisor, Monnet Ispat & Energy
o TOI Blog