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As per media reports, Tata Motors has placed a bid for assets of the
bankrupt Swedish carmaker, SAAB for around USD350mn. According to
SAAB officials, the company has received at least five bids, mostly from
outside Sweden. Tata Motors declined to comment. SAAB, a premium car
maker, has been in losses for over a decade now and its CY10 volume of
28,284 units is 1/5th of the peak achieved before the credit crisis. If Tata
Motors goes ahead with the acquisition, it would strain cash flows of JLR
in the near to medium term as it has to invest heavily in product
development. However, long term benefits would accrue from building
scale for Jaguar+SAAB and expanding the geographical reach.
About SAAB
GM sold SAAB to Spyker in 2010 for cash and shares worth USD400m. Spyker, however,
filed for bankruptcy following the failure of a Chinese consortium to complete the
purchase of the company since it was blocked by GM which opposed the transfer of
licenses for patents and technology to Chinese companies. Its peak sales volume was
~140k units with 78% coming from Europe and 19% from North America. It has been
making losses for a decade now. In CY10, it sold 28,284 vehicles with an average
realization of ~EUR29,000. The company posted EBIT losses of ~EUR252m. It had a net
debt of EUR551m as on Sep 2011.
Our view: Likely drag on cash flow in near term
The rationale for the acquisition appears to be building scale for the Jaguar business
given the fact that the premium car business requires heavy investment (which cannot
be justified without scale). Lack of scale led to the decline of SAAB. Ford had invested
heavily in JLR in product development hence the turn‐around was also easier. SAAB
would require heavy investments in product pipeline and future platform sharing. In
our view, this would drain the cash flow of Tata Motors in the near to medium term.
Long term benefits, however, could flow through platform sharing and achieving
economies of scale. It is difficult to take call on price (at USD350mn, the company is
valued at 1x EV/CY10 sales) given current sales does not show true potential. We have a
‘HOLD’ rating on Tata Motors with a target price of INR272.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
As per media reports, Tata Motors has placed a bid for assets of the
bankrupt Swedish carmaker, SAAB for around USD350mn. According to
SAAB officials, the company has received at least five bids, mostly from
outside Sweden. Tata Motors declined to comment. SAAB, a premium car
maker, has been in losses for over a decade now and its CY10 volume of
28,284 units is 1/5th of the peak achieved before the credit crisis. If Tata
Motors goes ahead with the acquisition, it would strain cash flows of JLR
in the near to medium term as it has to invest heavily in product
development. However, long term benefits would accrue from building
scale for Jaguar+SAAB and expanding the geographical reach.
About SAAB
GM sold SAAB to Spyker in 2010 for cash and shares worth USD400m. Spyker, however,
filed for bankruptcy following the failure of a Chinese consortium to complete the
purchase of the company since it was blocked by GM which opposed the transfer of
licenses for patents and technology to Chinese companies. Its peak sales volume was
~140k units with 78% coming from Europe and 19% from North America. It has been
making losses for a decade now. In CY10, it sold 28,284 vehicles with an average
realization of ~EUR29,000. The company posted EBIT losses of ~EUR252m. It had a net
debt of EUR551m as on Sep 2011.
Our view: Likely drag on cash flow in near term
The rationale for the acquisition appears to be building scale for the Jaguar business
given the fact that the premium car business requires heavy investment (which cannot
be justified without scale). Lack of scale led to the decline of SAAB. Ford had invested
heavily in JLR in product development hence the turn‐around was also easier. SAAB
would require heavy investments in product pipeline and future platform sharing. In
our view, this would drain the cash flow of Tata Motors in the near to medium term.
Long term benefits, however, could flow through platform sharing and achieving
economies of scale. It is difficult to take call on price (at USD350mn, the company is
valued at 1x EV/CY10 sales) given current sales does not show true potential. We have a
‘HOLD’ rating on Tata Motors with a target price of INR272.
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