Five automative companies have raised, or plan to raise, more than Rs 3,000 crore in two weeks in an effort to replenish working capital funds as the nation prepares to see-off the 40-day lockdown on May 3.
Non-convertible debentures (NCD) and convertible preference shares (CPS) have become the preferred method for the auto industry for raising capital at a time when efforts are being made to get the closed factories humming again.
The companies have been forced to dig into their cash reserves to pay salaries, settle vendor bills and dealer payments, interest on loans and a variety of other fixed costs.
Truck and carmaker Tata Motors has proposed to issue NCDs of Rs 1,000 crore for which a duly constituted committee of the board will hold a meeting on May 5, the company informed on April 28.
The Mumbai-based company is the largest employer in the automotive space in India and has six factories (in Gujarat, Maharashtra, Uttarakhand, Karnataka, Uttar Pradesh and Jharkhad) excluding two factories running under subsidiaries.
Sources say that Tata Motors, like its peers, is forced to have a relook at its capital expenditure (typically around Rs 4,000 crore on a stand-alone basis) and go aggressively after cost cutting since there is no immediate respite in sight from the slowdown triggered by the coronavirus pandemic.
Tractor and sports utility vehicle (SUV) specialist Mahindra & Mahindra (M&M) has successfully raised Rs 1,000 crore in NCDs issued on a private placement basis.
M&M has already talked about some belt tightening this year as far as spending in concerned besides rescheduling of deliveries of new products caused due to disruption in parts supplies because of COVID-19.
TVS Motor Company, Apollo Tyres and Motherson Sumi Systems have each raised a minimum of Rs 500 crore through NCDs and CPS. Each of these companies has been engaged in some corporate activity such as acquisition or restarting of production.
While Chennai-based TVS bought UK’s Norton Motorcycles in an all-cash deal totaling Rs 153 crore Apollo Tyres has restarted three of the six plants it has in India and abroad whereas a fourth plant is expected to commence production this week.
Motherson Sumi Systems, India’s biggest auto parts manufacturer, has ramped up production from its 27 plants in China which were shut down due to the outbreak. Motherson’s clients including Audi, Daimler and Volkswagen have restarted production activities before placing orders for components with the Delhi-based company.
Though there is uncertainty about vehicle demand for the next few quarters there is expectation about a pent up demand firing in the initial few weeks of resumption of sales from showrooms.