Tata Motors to launch IPOs for subsidiaries

By: Kausik Datta

Tata Motors plans to launch initial public offerings (IPOs) for two of its subsidiaries — HV Axels and HV Transmissions.

Analysts said the management of the Tata company indicated its plan to come out with the IPOs at a recent conference call with them. The conference call took place a few days after the announcement of the company's first quarter results.

They added that the company could come out with the IPOs by the end of the financial year. They also pointed out that the IPOs might generate around Rs 400 crore, if the Tata company went for a 30 per cent dilution of its stake.

When contacted, a Tata Motors spokesperson said the company was “open to considering options of strategic partners or IPOs for these two subsidiaries to unlock value in these companies.” However, the company had not set any time-frame, he added.

The spokesperson further said the company would not place any shares with private equity investors prior to the IPOs. Induction of such investors before launching IPOs has become popular with promoters as it helps them to realise the market value of the stock.

According to analysts, the valuation of HV Axels and HV Transmissions would be Rs 773 crore and Rs 453 crore respectively on the basis of a PE multiple of 12x in FY08. So, the listing of these companies would boost the valuation of every Tata Motors share by Rs 19 for HV Axels and Rs 11 for HV Transmissions. Tata Motors has 38.28 crore paid-up equity shares.

They said the unlocking of value through the IPOs would help Tata Motors fund its capital expenditure of Rs 1,200 crore in the next couple of years. It would also improve the free cash flow of the company, they added.

The key subsidiaries of Tata Motors include Tata Construction in which it holds 60 per cent stake, Tata Technologies (95 per cent) and Tata Daewoo (100 per cent). Tata Motors has 30 subsidiaries.

In FY06, HV Transmission posted net profit of Rs 30.1 crore (Rs 27 crore in FY05) over revenue of Rs 127.6 crore (Rs 126.6 crore). During the last financial year, HV Axels has recorded net profit of Rs 46.3 crore (Rs 42.7 crore) over revenue of Rs 143.9 crore ( Rs 145.8 crore).

Reserve and surplus of HV Axels and HV Transmission stood at Rs 101.55 crore and Rs 55.60 crore, respectively, last year. The Tata Motors stock closed at Rs 837.30 on the BSE, 2.53 per cent higher than yesterday's close.