Maruti would not have entered in deal like JLR: Khattar

Tata Motors has finally closed the deal with Ford USD 2.3 billion. The initial reaction in the stock has been mildly negative as expected. Many of these global sized acquisitions don’t evince great response from the stock market like it happened with Tata Steel and Tata Motors is no different; the ADR slipped 7% yesterday and the stock has followed.

As soon as the announcement was made, reactions from across the auto industry flowed in. Understandably some were positive, while some negative.

An industry peer and a direct competitor, Jagdish Khattar of Maruti Suzuki said that his company would not have entered in a deal like Jaguar - Land Rover. He expounds that the Indian auto market is unlikely to see double-digit growth in 2008.

Some experts in the field like Sirish Chandran, Executive Editor of the Overdrive magazine believes the deal is a positive move and that Tata Motors is buying Jaguar at the right time.

Ashutosh Goel of Edelweiss Capital feels the deal may put additional strain on Tata Motors' balance sheet, although the core business of commercial vehicles and cars will see a recovery in the next few quarters.

But does the deal make sense strategically for Tata Motors? Khattar said, "The point is that so far we have not been made aware of what the strategy is, what the game plan is. The fact that since they have gone ahead with it, they must have thought it through and they must have worked out some strategy and some game plan."

On whether he would have struck a similar deal, he said, "We won’t have taken it, I am sure my Japanese (partner) won’t have taken it. But India is an evolving market, our automobile industry is evolving."

Auto expert Chandra thinks that Tata Motors have bought into Jaguar at the right time. "They have been in the doldrums so very long with the old cars, the S-type, the X-type. With the XF, the Jaguar actually got back into form and that’s the car that will take Jaguar into the next decade. Tata Motors will be strongly placed to push Jaguar into emerging markets with that car," he explains.

Edelweiss' Goel said, "Compared to the current size of Tata Motors’, it will put additional strain on their balance sheet going forward at least in the next one or two years. They would need to go for dilution of equity, they would need to raise maybe about USD 2.2.5 billion worth of debt, not only to fund the deal, but probably also to pump in additional money for the future plans that Jaguar and Land Rover have over the medium-term. I don’t know whether the current cash flows of Jaguar and Land Rover are sufficient to sustain them and Tata Motors might have to pump in additional money into that."