Tata Motors brakes

Tata Motors is down among the top five losers on the BSE since the opening bell today; from its close of Rs.692.40, it fell down to an intraday low at Rs.665.45,  almost 4% down.

Though the news is not yet confirmed by the company, Economic Times reported today that Tata Motors might seal the deal to buy the commercial vehicles segment of Italian company, Iveco. This price being quoted for the buyout is $4.5 billion, its second largest deal ever after the $12 billion paid for Corus and the biggest deal in the Indian automobile sector.

The market is worried as any such big deal means debt coming in, increased leverage and that is something which the market dislikes. The price being paid is more than 10% if its market cap which implies significant strategic commitment. It means, there will be strain on near-term free cash flow, especially given Tata’s ongoing EV and JLR capex.

It could also be because Tata Motors is now doing well and a huge share of this success is on account of its EVs. Based on this , investors probably wanted Tata to double down on EVs and passenger cars thus a massive CV expansion in Europe may seem off-priority.

But all said and done, this could be an overreaction in the short term. Once clarity comes in about - clear synergy roadmap, smart cost integration and revenue lift via exports, EV technology transfer, etc., the stock could recover.