Tata Motors Fixed Deposits: Are you willing to invest?

One after the other, Indian companies are introducing their deposit schemes in the market. Now it’s the turn of Tata Motors, India’s largest automaker, which came out with its deposit schemes on August 25. It is seen that though company deposits offer better returns, normally 1-2 per cent higher, than bank deposits, they do not guarantee high safety of money invested. Thus, it is remained to be seen if Tata Motors, which is running high debts, would be able to pay good returns as promised to the deposit holders? First, let us see if the product suits to common investors like us.

Company Profile
Tata Motors Limited is India’s largest automobile company engaged in the manufacture, design and marketing of passenger and commercial vehicles in the country. It is a flagship company of Tata Group, one of the largest conglomerates in India. It is the fourth largest truck manufacturer and second largest bus manufacturer of the world. Tata Motors has reported a net profit of Rs 1,016.6 crore with a total debt of Rs 13,166 crore as on March 31, 2009.

Issue Details
Tata Motors came out with its second fixed deposits in a year, with an aim to collect Rs 1,500 crore from the market. There are two schemes A and B with non-cumulative and cumulative deposit plans, respectively. Table 1 and Tables 2.1 and 2.2 explain highlights of the schemes and various options available under each of them.

Both the deposit plans, cumulative as well as non-cumulative, are available for 2 years and 3 years, with an interest rate of 8 per cent and 8.75 per cent respectively. Under the non-cumulative plan, depositors have an option of quarterly income for the minimum investment of Rs 20,000 and monthly income for investments of Rs 1 lakh and above. Cumulative plan offers higher return, with the effective yields coming to 8.58 per cent and 9.88 per cent for 2- and 3- year category. The company has kept all classes of investors in mind, and has offered an additional 0.25 per cent rate for senior citizens, its shareholders and employees. It has also kept the negotiations open for additional interest rates for deposits of Rs 25 lakh and above.

Financial Analysis

Tata Motors has borrowed huge sums of money from the market. Its debt is mainly attributed to the purchase of Jaguar Land Rover Ltd for which it took a loan of $3.2 billion. It took an additional loan to keep the company running. Also, Tata Motors raised credits when it formed a joint venture with Fiat India Automobiles Ltd. Its current adjusted debt-to-equity ratio stands at 10:1, as at the end of 2008-09, against the industry average of 0.47(1:2). It is even much higher than the acceptable limit of 2:1.

Comparison with Other Similar Products

Table 3 compares Tata Motors deposits with similar savings schemes available in the market on various parameters like safety, liquidity, etc. In liquidity and safety, Tata Motors FD scores lower than bank deposits and MF income funds. Even returns offered on it do not look attractive considering higher risks involved. On the other hand, government-sponsored post office schemes and bank deposits are highly secure. Banks even provide additional returns if the deposit amount is increased.

However, it will not be wise to write off Tata Motors deposits completely as the company has got decent history, strong parental backup from Tata Group and an established track record. Moreover, there is also a possibility of ‘Nano’ invasion of the market. It is a good choice for the investors looking for extra returns over conventional investment products such as bank deposits and post office schemes. But, if the company goes bust, which is highly unlikely, deposit holders would get their money only after all obligations to secured creditors are fulfilled, and this can be cumbersome.

How can retail investors invest into it?
Investors who are willing to invest in Tata Motors deposits can take a print out of the application form (attached herewith). Applications forms can be submitted at the selected offices whose details and addresses are provided on the application form.

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