Between August 13 and 20, Tata Sons bought 2.6 crore shares worth Rs 700 crore from the open market.
MUMBAI: Tata Sons has quietly bought nearly 2.6 crore shares of Tata Motors from the open market in the past one week immediately after the stock hit a 52-week low following its worst bottom line performance in a decade, according to BSE data.
Tata Motors’ stock price has taken a beating in the past few months because of the growing challenges faced by Jaguar and Land Rover (JLR), its luxury cars business, globally.
The stock has plunged 48 per cent from its 52-week high of Rs 466.95 in November last year, to a low of Rs 243.25 on August 13, 2018. Between August 13 and 20, Tata Sons bought 2.6 crore shares worth Rs 700 crore from the open market.
Market watchers say that it’s an indication from the promoters to institutional investors that they believe that their stock is grossly undervalued.
“When the sponsor of the company firmly believes that the market is undervaluing the fair value of their underlying business, the course of action is to aggressively buy shares of the company in the open market,” said Ajay Bodke, CEO-PMS, Prabhudas Lilladher. “The idea is also to send out a strong signal to institutional investors that promoters firmly believe in the company’s growth story and will reward investors handsomely in the medium term.”
ADVERTISEMENT
The company has sustained its turnaround in its India business for the fourth consecutive quarter with a strong performance, and has reported 21.3 per cent increase in domestic sales in July.
However, during the April-June quarter, it has posted a loss of Rs 1,863 crore because of a sharp fall in sales of JLR cars, following which a few analysts from foreign broking houses such as CLSA, UBS and BNP Paribas said that the risk-reward is not compelling.
“Deterioration in JLR’s performance is likely to result in rapid re-leveraging of Tata Motors’ balance sheet, potentially overwhelming the domestic business’s improvement,” said Sonal Gupta, analyst, UBS Securities.
JLR is planning to invest Rs 1.2 lakh crore in the next three years, the biggest in its history, as it seeks to stay ahead of Mercedes-Benz, BMW and Audi in the electric vehicles race and narrow the gap with the entrenched German rivals in the traditional luxury car market.
ADVERTISEMENT
However, this high capex phase would cap the stock valuations, according to Chirag Shah, analyst, Edelweiss Securities. Shares of Tata Motors have declined 38 per cent so far this year, compared with 6 per cent fall of Maruti Suzuki, and 8 per cent increase in the case of Ashok Leyland shares.
CLSA, while maintaining its sell rating, has said that they would remain negative on the stock given the subdued demand, an ageing portfolio, rising competition, high investment requirements and risk from the US import tariffs and Brexit.
