A day after striking a deal to acquire British automobile firms Jaguar and Land Rover for $2.3 billion, Tata Motors Thursday said it will turn the two companies around and make them profitable ventures again.
"As a consolidated entity the companies are profitable," said C. Ramakrishnan, president and chief financial officer of Tata Motors. "Jaguar and Land Rover will operate as two distinct entities owned by Tata Motors UK Holding Company."
Ford acquired Jaguar for $2.5 billion in 1989 and Land Rover for $2.75 billion in 2000. But the US auto major put the two firms on the market in 2007 after posting losses of $12.6 billion in 2006 - the heaviest in its 103-year history.
"A net margin of three percent on the combined turnover will be a sizeable money from operations to start with," said Piyush Parag, an analyst with Religare, the finance arm of drugs major Ranbaxy Laboratories.
Ramakrishnan remarked that the turnaround would also require additional money to be pumped into the ventures. "The additional funds will be met out of internal accruals of the two companies," he said.
Asked about the cost saving measures the Tatas have drawn up for Jaguar and Land Rover, Ramakrishnan said: "We have just signed the shareholders agreement. It will take another 3-4 months to get other approvals and plan ahead."
According to analysts there will be some pressure on the Tata Motors balance sheet for a year or two. "The net profit margin may slide by 15 percent for the next two fiscals," said Parag.
"Consolidated margin will be down for Tata Motors as the expenses will be higher during the initial years."
But from the long term perspective the acquisition of Jaguar and Land Rover was positive for Tata Motors, he said, adding there is also nothing much to worry in the short term as necessary money has been raised to pay the sellers.
Tata Motors is also evaluating proposals to sell some of its investments to raise money. "We will disinvest some our holdings to meet our fund needs. We will also look at a mix of equity and debt," said Ramakrishnan.
For the $2.3 billion Tata Motors will pay Ford, the company, India's largest automobile maker, has already raised a $3 billion bridge loan from a consortium of bankers.
The company official said the extra money was raised to meet incidental expenses needed towards the purchase.
Indo-Asian News Service