Tata Motors rights issue at Rs 450/sh priced conservatively: Analyst

MUMBAI: The Rights Issue of Rs 7500 crore by Tata Motors, India's largest auto company by market cap, is seen as conservatively priced.

The Issue will result in equity dilution by only 5 per cent and is likely to improve networth of the standalone entity.

“The dilution is 0.5 per cent more than our expectation and we believe Tata has priced the issue conservatively at Rs 450 per share. The proceeds will be used to fund the capital expenditure and repayment of maturing debt. However, the higher dilution relative to our expectations is not materially significant to cause any change in our fair value estimate of Rs 700 per share,” said Piyush Jain, Equity Research Analyst, Morningstar Investment Adviser.

“We view this 4-star rated stock as undervalued with the shares trading at a 20 per cent discount to our fair value estimate. Our fair value is based on our five year discounted cash flow forecast and is based on premise of i) Higher operational leverage from higher number of models on fewer platforms ii) New models in new price segments will ensure incremental volumes over the next couple of quarters,” Jain added.

The Rights share issue is priced at Rs 450 per share and at Rs 271 per DVR share. Shareholders will give 6 rights shares for every 109 held.

The company has also approved buyback of NCDs valued at Rs 1,250 crore.

The rights issue is aimed at cutting debt and funding its growth program. The promoters are infusing over Rs 2,500 cr via the issue.