Mr. Jagannadham Thunuguntla talks about the high debt to equity ratio of Tata Motors and the necessity to further dilute the stake to bring it down to more reasonable levels.

1. Tata Motors needs new equity to cut debt – analysts
08.28.09, 07:10 AM EDT
By Janaki Krishnan
MUMBAI, Aug 28 (Reuters) - Tata Motors Ltd, India's largest vehicle maker, needs to raise an estimated $1
billion in fresh equity and asset sales to deleverage its balance sheet and cut its debt-to-equity ratio to
reasonable levels, according to analysts.
Saddled with huge borrowings, the company's debt-to-equity ratio stood at 10 to 1 on an adjusted basis at the
end of the 2008/09 fiscal year in March, compared to the industry average of 0.47, although it has repaid some
debt in the June quarter.
'They will have to raise further capital,' said Jatin Chawla, who tracks the auto sector for the institutional
clients of brokerage India Infoline.
'They will be looking at a mixture of disinvestments and also an equity issuance to raise about $1 billion,' he
said.
The company's burgeoning debt has been largely related to the purchase of Jaguar Land Rover last year for
which it took a bridge loan of $3.2 billion, and additional debt it is incurring to keep the loss-making unit
running.
Last year, two rights issues to raise about $850 million had to be bailed out by Tata Sons, its leading
shareholder, and underwriters.
At the end of the June quarter, Tata Sons and other Tata group firms held 41.4 percent of Tata Motors, which
analysts estimate will have to be diluted by at least 15 percentage points to get its debt to equity ratio closer to
industry norms.
Despite the prospect of hefty capital raising, investors have piled into the stock, betting the maker of the super-
cheap Nano and the country's leading truck maker will lead the way as the economy recovers.
Tata Motors shares have outperformed the benchmark index by 26 percentage points in the past month and
more than trebled in 2009, compared to a 135 percent rise in the sector index.

2. 'People are betting on the long-term growth of the core operations of the company and an uptick in heavy truck
sales, which is the bread-and-butter for the company,' said Surjit Arora, analyst at Prabhudas Lilladher.
The cost of insuring against Tata defaulting on its debt has fallen by around 80 percent since its peak in the
first quarter.
DEBT & DILUTION
A quick calculation by investment bank SMC Capitals for Reuters showed that for the company to raise
capital and bring down its debt to equity ratio to the industry average of 0.47, it needs to cut the 41.4 percent
founder stake to 9.2 percent.
To bring it down to 2 to 1, it would need to lower its ownership by 15 percentage points to 26 percent.
The company has said it intended to bring down the ratio to 1:1 in the next two to three years.
'By my reckoning they should be looking at about 20 percent dilution,' said Chawla.
The company's consolidated debt stood at 349.5 billion rupees ($7.2 billion) at the end of March. Since then it
has repaid about $1 billion of long-term debt related to buying Jaguar and Land Rover. Consolidated June
quarter results, set for release on Aug. 31, should provide an update on its debt position.
(Editing by John Mair and Lincoln Feast)
((janaki.krishnan@thomsonreuters.com, +91-22 66369138; Reuters Messaging:
janaki.krishnan.reuters.com@reuters.net)) Keywords: TATAMOTORS/DEBT
(if you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com)
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