On a day when the the front-line bluechip stocks led the rally in equity market, shares of Tata Motors came under selling pressure after Tata Steel decided to bring down its stake in the group company.
Tata Steel in a BSE filing said that it sold 3.85 crore shares or 1.3% stake in Tata Motors in open market to institutional investors for a total consideration of R1,250.7 crore. The steel maker also announced that it plans to sell another lot of similar amount to the group holding company Tata Sons which may lead to it divesting half of the 5.5% stake in Tata Motors it owned as of June 2015.
“The Company also proposes to sell equity shares of face value of R 2 each of Tata Motors Limited to Tata Sons Limited around the market price through an off-market transaction for a total value not exceeding Rs. 1,250 crore,” said an exchange filing.
Shares of Tata Motors closed on Friday at R328.40, down R9.50 or 2.81% whereas the 30-share Sensex ended the session at 26218.91, up 254.94 points or 0.98%. The stock was the biggest loser in the BSE auto index which closed at 17571.70, up 75.70 or 0.43%.
The selling is an extension to a similar liquidation the company carried out of its stake in jewellery and eye-wear maker, Titan company, another group company. While its stake in Titan had come down from 4.37% to 2.18% between the quarters ending March 2015 and June 2015, respectively, on August 11, the steel major sold its entire stake in Titan, to Tata Sons for R637.5 crore shows exchange data.
In a difficult business environment, outlined by falling global steel prices, muted domestic demand and surging imports, Tata Steel has in the recent past made known its plan to divest non-core assets and group investments. As the profitability came under pressure with net earnings declining from R3595 crore in FY14 to R2,127 crore in FY15, the Tata steel stock has vastly under-performed the Sensex this year so far.
During an analyst call after its April-June quarter numbers, Koushik Chatterjee, group executive director- finance & corporate, said that the company generated about R900 crore largely from divestment in group investments and listed securities. “We will continue our journey towards de-risking the balance sheet and we have divested our non-core assets” he added.
On a query regarding the details of such future divestment, Chatterjee pointed out that Tata Steel over the last five to six years have raised about R15,000 crores various monetization of strategic assets, non-core assets, listed assets. “I can’t say that whatever we have done is behind because based on where we are in our needs, including our needs for capital, CapEx et cetera, the board looks at these issues periodically,” he added.
While the firm is in process of completing the phase I of its Kalinganagar plant, the capex requirement is seen coming down in FY16 by nearly 25% from the R13,000 crore of spend the company carried out in FY15. As of June 2015, it carried gross debt of R82,380 crore on balance sheet.