Tata Motors a big dilution negative for near-term

Tata Motors given the size of the right’s almost unambiguously near-term negative. It’s very big dilution - nearly 35% depending on the price of course and one’s the eventual dilution happens over the next two tranches, I think we will be looking at close to 45-50% dilution, 45% is a serious dilution. I don’t think the market was ready for that so once again you have got to spilt it between the near-term and the longer-term.

In the near-term, it would not be a surprise but almost a miracle if the Tata Motors stock outperforms the auto pack on the market. It will be probably pegged back very heavily with this kind of a heavy dilution, which is coming in. Longer-term investors can take the call that JLR’s cash flows will off-set the kind of dilution which is happening but there is a risk on JLR’s cash flows, they are not in the bag out yet.

So my sense is that you don’t bark up this tree for the near-term outperformance. Yes, Tata Motors is doing right thing strategically for its business in the longer-term, it needs cash and it doesn’t want to leverage its balance sheet and is going the equity way and there are things to be said in favour of that.

But I don’t think the investors in the near-term will take it very kindly - this large dilution that is coming in. So I don’t know whether it will fall too much because it is already at Rs 630. But I will be very surprised if it goes up anywhere in the near-term.