Tata To West Bengal:The Nano Is On The Move

It was probably the last straw for Tata Motors when two of their security guards were beaten up by a mob .What was worse is that this happened in the night despite heavy police presence early on Tuesday. Both guards sustained severe injuries and are now recuperating. Less than 24 hours after this incident the crew at the Tata factory in Singur have been told to slowly start moving out all their manufacturing equipment and relocate.Though no formal announcement has been made that the Tatas have finally decided to walk out of West Bengal with their Nano, it is quite safe to assume the same.

With a share rights issue expected to hit the market next month, this development will undoubtedly cause confusion in investors’ minds, unclear about the future.

No one expects the Tatas to stay in Singur until and unless a drastic development takes place. The Tatas are probably going to make a formal announcement only after they have successfully moved out all their equipment. A considerable amount of speculation and uncertainty floats up regarding Tata Motors. This is something investors don’t want to experience especially at a time when world markets including our own Sensex are dealing with complicated macroeconomic problems.

The relocation of the Nano project will cause an undesirable amount of delay . The relocated project must start from scratch wherever its new home might be. The Tatas seem to have narrowed down the new home of the Nano based on the back of lucrative offers from the states of Haryana, Karnataka and Maharashtra.

If they were to move to Dharwad in Karnataka then it would bode well for them as Dharwad is located near the Tata’s other auto manufacturing unit near Pune.The new site will be chosen on the price of the land leased to them and the incentives offered by the respective state governments.

Despite all this, the Nano is expected to hit the market next month. The initial one thousand cars will be rolled out from the Tatas’ Pantnagar factory in Uttar Pradesh. It is important for Tata Motors to make sure that by diverting this unit toward the manufacture of the Nano; their other vehicles don’t suffer.

Shareholders and future investors are aware that there is a rights issue that the company has planned to deploy next month in order to fund their acquisition of Ford’s Land Rover and Jaguar. Much of this rights issue will also be deployed in the international market in order to fund the Nano project as well. Foreign eyes have already been opened to the prospect of investing in the world’s cheapest car.

What is not required from the company point of view is a significant under valuation in their shares because possible investors might fear a delay in return since the entire project faces relocation. A short term investment in Tata Motors might very well prove to be tricky.

What will work for them is the fact that despite the delay in setting up a new plant, consumers will not shy away from buying the Nano. The challenge will be to balance the supply of the car once it becomes a mainstay without putting undue stress on their manufacturing units.