Tata Motors fends off investor skepticism on $4.4 billion Iveco acquisition
Less than 12 hours after Tata Motors announced its largest acquisition ever, its management fielded questions from analysts and investors over the rationale for the acquisition.
'It is a meaningful, large acquisition… There is an understanding between the two companies to build a business of scale and size,' chief financial officer P.B. Balaji said during the call.
Achieving high growth in the commercial vehicle business isn't easy and India's largest commercial vehicle maker needs such acquisitions to deliver growth to shareholders, the management added.
'Market shares are highly stable in the commercial vehicle business. It is not a very disruptive business. Diversification of cash flows is important to maintain growth in the business,' Balaji explained.
Tata Motors shares were up 0.28% at ₹ 670.30 each in early afternoon trade on NSE.
After the deal was announced late Wednesday, investors noted the possibility of a boost in earnings. But they also raised concerns as previous similar acquisitions—such as that of South Korea-based Daewoo's commercial vehicle business for $102 million in 2004—did not result in meaningful gains in the international markets.
Some investors also highlighted challenges post Tata Motors's acquisition of UK-based Jaguar Land Rover in 2008 for $2.3 billion, and Tata Steel Ltd's acquisition of Corus Plc., also based in the UK, for $13.1 billion in 2007.
'Given the group's challenging experience with Corus and JLR acquisitions, why do you think this is somewhere Tata Motors can create value?,' asked Sonal Gupta, head of research-equities, at HSBC Asset Management India. 'Tata Motors CV (commercial vehicles) has limited international presence. We haven't really been able to capitalize the tech from Tata Daewoo to grow internationally.'
Balaji said Tata Motors's portfolio and business level were close to that of Iveco, an acronym for Industrial Vehicles Corp., and the newly formed entity post the acquisition would invest up to $1.7 billion each year.
'Opportunities like these do not come when you want. You move when such opportunities arise. There was a very small window to get this business,' the CFO told the investors and analysts in attendance.
On the JLR and Daewoo acquisitions, Balaji said JLR was a premium-luxury player and Tata Motors was a mass player at the time of acquisition, resulting in some hiccups, while Daewoo was a small deal limited to a single market.
'We have had our learnings from the experience,' Balaji assured investors.
During Thursday's call, analysts from Morgan Stanley, Kotak Institutional Equities, and Bank of America raised questions about the calculation of free cash flow expectations and potential earnings boost.
Per the company's estimate, Tata Motors and Iveco would have a significant combined global presence, with sales of over 540,000 units and over $25 billion in revenue.
Europe would account for half of the combined group's total sales, followed by 35% in India and the remaining 15% in the Americas.
Tata Motors lined up $4.36 billion in funding from Morgan Stanley Bank NA, Morgan Stanley Senior Funding Inc., and MUFG Bank Ltd for the acquisition, the company said in a statement on Wednesday. The company will look for fundraising opportunities to repay the debt, of which 30-40% will be equity and 60-70% will be debt, it added.
Tata Motors said the acquisition of Iveco will allow the company to enter geographies like Latin America, where it was not previously possible due to fund and network constraints.
In a note on Wednesday, analysts at Nuvama Institutional Equities said the acquisition would lead to an earnings boost for Tata Motors, with earnings per share estimated to increase by 4%.
'However, the key downside risk for Iveco is possibility of a sales downcycle in Europe and US CV markets resulting in lower earnings in near-term,' they wrote.
The commercial vehicle business is the second largest for Tata Motors, contributing 17% to its 2024-25 revenue. However, the business's overall sales volume declined 5%, although exports grew 3%.
Since the first confirmation of advanced talks of a deal between Tata Motors and Iveco on 30 July, Tata Motors shares have fallen by 3% while the Nifty Auto shed 1%.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Time of India
3 minutes ago
- Time of India
Why burgers cost so much in US right now
Climate change is driving up beef prices as droughts reduce grazing land, forcing ranchers to reduce herds. High temperatures also affect cattle's health and reproduction, further impacting supply. Increased consumer demand exacerbates the situation, leading to record-high prices for ground beef and steaks, a trend expected to continue for several years. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads There's no question that steak and hamburgers contribute to global warming, driven by cows' potent methane burps and their wide-ranging grazing habits. But a warming planet with intensifying extreme weather is also affecting the price of your steak and years of drought, pastures haven't been producing enough grass to feed cattle. So ranchers have been sending their animals to the slaughterhouse earlier, cutting back herds even as Americans eat more beef. This is sending prices to record ground beef prices in city supermarkets surpassed $6 a pound in June, while the cost of uncooked beef steaks approached $11.50 a pound. Those levels are the highest in a decade, according to US Bureau of Labor Statistics upward march of prices illustrates a phenomenon known as climate inflation , in which droughts, heat waves, floods and wildfires raise prices for everything from home insurance to groceries. While some price hikes are so far proving temporary, others are longer-lasting, like beef, which is expected to stay expensive for at least the next few years.'This is one indicator of how climate change will affect our food system, and it's playing itself out in beef right now,' says Ben Lilliston, director of rural strategies and climate change at the Institute for Agriculture and Trade Policy, a Minneapolis-based nonprofit. 'You're seeing it in other commodities, like coffee.' US beef prices are spiking after years of drought in areas where cattle are raised. In the southwestern US in particular, which includes cattle-producing areas like California's San Joaquin Valley, drought has exceeded historical expectations over the last quarter-century, says Brad Rippey, a USDA have found that global warming's higher temperatures make droughts more likely to happen in some places and more severe. For example, a 2020 study that examined anomalously dry conditions in the western US and northern Mexico between 2000 and 2018 determined that climate change contributed to nearly half of that drought's conditions in the US in recent years were also enhanced by several instances of the naturally-occurring La Niña climate pattern, which tends to leave portions of the US drier than usual, Rippey says. Ranchers have some options, including feeding their herds alternatives to pasture grass, such as hay. But as dry conditions continue, selling the cattle begins to make more financial sense than buying the expensive feed. US herds have been dwindling for years, and are now smaller than ever even as drought conditions have improved.'The long-term impact is that you have less ability to produce, which is where we find ourselves now after four or five years of this process,' says Derrell Peel, agribusiness professor at Oklahoma State from consumers for beef, meanwhile, has grown, which also contributes to higher prices. That generates a trade-off between cashing in on today's high prices and holding animals back for breeding — a process that takes years to pay off. A female calf born this year could be sold, entering next year's beef supply, or it could be bred in 2026 and rear a calf ready for market by roughly 2028. Cattle usually have only one calf at a time, in contrast with other animals like chickens and factors affecting cattle ranching besides drought include higher interest rates and greater costs for inputs ranging from the cattle themselves to feed and cattle spend their lives outdoors, exposing the animals to other hallmarks of climate change like extreme heat. High temperatures can affect cattle's reproductive health and their growth, extending the time and cost of raising animals. In the highest-emissions scenario, it could get so hot by 2050 that fewer parts of the world will be suitable for cattle production, according to the most recent Intergovernmental Panel on Climate Change climate change-related threat is also looming: a deadly parasite known as the screwworm, which was long-ago eradicated in the US but has made a resurgence in Mexico. It thrives in warmer climates, and scientists say that climate change could facilitate the fly's spread. While the majority of American beef is produced domestically, the US routinely imports young cattle from Mexico to fatten up in American feedlots, says David Anderson, a professor and livestock economist at Texas A&M supply of those cattle, the equivalent of about 4% of US calf production, has been intermittently cut off since November because of the threat the screwworm poses. 'On the margin, that's a bunch of animals,' he says. 'That's contributing to high prices.'
Time of India
3 minutes ago
- Time of India
Abu Dhabi's MGX could raise up to $25 billion for AI fund: Report
Academy Empower your mind, elevate your skills Abu Dhabi-based MGX is considering plans to raise as much as $25 billion in third-party capital as the investment group looks to ramp up its artificial intelligence holdings, Bloomberg News reported on Tuesday, citing people familiar with the declined to comment on the report and Reuters could not immediately verify executives are weighing raising money from financial and strategic investors in Abu Dhabi and beyond, but Mubadala Investment and AI firm G42 will remain MGX's main backers, the report final decisions have been made, according to the which has invested in OpenAI and Elon Musk's xAI, is chaired by Sheikh Tahnoon bin Zayed Al Nahyan, the UAE's national security adviser and a brother of UAE President Sheikh Mohammed bin Financial Times reported last week that French AI startup Mistral is in talks with MGX and other investors to raise $1 billion at a valuation of $10 billion.
Economic Times
3 minutes ago
- Economic Times
Abu Dhabi's MGX could raise up to $25 billion for AI fund: Report
Company executives are weighing raising money from financial and strategic investors in Abu Dhabi and beyond, but Mubadala Investment and AI firm G42 will remain MGX's main backers, the report said. Tired of too many ads? Remove Ads Abu Dhabi-based MGX is considering plans to raise as much as $25 billion in third-party capital as the investment group looks to ramp up its artificial intelligence holdings, Bloomberg News reported on Tuesday, citing people familiar with the declined to comment on the report and Reuters could not immediately verify executives are weighing raising money from financial and strategic investors in Abu Dhabi and beyond, but Mubadala Investment and AI firm G42 will remain MGX's main backers, the report final decisions have been made, according to the which has invested in OpenAI and Elon Musk's xAI, is chaired by Sheikh Tahnoon bin Zayed Al Nahyan, the UAE's national security adviser and a brother of UAE President Sheikh Mohammed bin Financial Times reported last week that French AI startup Mistral is in talks with MGX and other investors to raise $1 billion at a valuation of $10 billion.
