Tata Motors hit by Daimler stake sale

Shares in Tata Motors fell almost 6 per cent on Tuesday after Daimler said that it had sold its 5.34 per cent stake in India’s largest carmaker to the group’s founders and other investors.

Tata Sons, the group’s holding entity, and a number of other investors including Citigroup acquired the stake. The German group fetched about €300m ($410m) from the sale and said the transaction would lift its earnings before interest payments and tax by about €265m in the first quarter of 2010, after a large rise in Tata’s share price in the past year.

The move marks another step in the premium car and truckmaker’s move to disentangle itself from a web of partnerships built over the past decade with carmakers including Chrysler and Mitsubishi.

It will further boost Daimler’s net cash position, which had already jumped by several billion euros to €7.3bn in its industrial business by the end of 2009.

Daimler and Tata have had a long association – first through a 15-year agreement to make trucks in India starting in 1954 and again in the 1990s to make Mercedes-Benz cars in India. That agreement ended in 2001. But the two companies were transformed from partners into competitors after Tata bought luxury car group Jaguar Land Rover two years ago and Daimler decided to begin manufacturing trucks in India.

Daimler, the world’s largest truckmaker, seized control over a joint venture last year after its partner Hero pulled out of the business. Daimler is building a plant in Chennai, in south-eastern India, which is set to start producing trucks for the burgeoning market in 2012.

Truckmakers such as MAN and Daimler are rapidly moving into developing countries such as China, Brazil and India to try to tap the fast-growing demand in these regions.

India is one of the world’s fastest-growing car markets, where vehicle sales rose 22 per cent in the first nine months of the current fiscal year ending in March.

China, in particular, helped to offset rapidly falling sales in developed countries. In February, Daimler’s Mercedes premium car brand more than doubled Chinese sales to 7,300 cars.

Tata, which last month named the former head of Opel, Carl-Peter Forster, as chief executive, derives about two-thirds of earnings from its truck and commercial vehicle business.

Shares in Tata Motors closed down 2.7 per cent to Rs776.05 in Mumbai on Tuesday.