Mumbai, The stock price of auto companies Tata Motors and Ashok Leyland dipped sharply on Thursday as the companies said they would cut production to adjust to the fall in demand and piling inventories.
While Tata Motors fell by more than 12 per cent on Thursday, Ashok Leyland slipped by more than nine per cent.
Tata Motors announced on Wednesday that it had decided to shut down its Jamshedpur plant for three days starting Thursday.
Tata Motors is the largest commercial vehicles maker in the country, and produces heavy trucks including tractor-trailers, multi-axle vehicles and tippers at the Jamshedpur plant. The company makes medium and heavy commercial vehicles at its Pune plant too.
Ashok Leyland has decided to ?moderate the production plan for the next two months,? a company statement said. Its manufacturing plants will work only three days a week, until December 8, the company said.
There was more than one reason for the decline in the Tata Motors stock. With the global auto industry facing a slump in demand, even the Jaguar Land Rover (JLR) deal is feeling the impact, said an analyst with Dolat Capital.
The acquired JLR business is significantly larger than Tata Motors? existing business and exposes the company to new product segments and geographies and hence will have significant bearing on Tata Motors? future prospects, a report from Sharekhan says.
It also adds that while the acquisition would help Tata Motors to attain a global footprint and provide an access to latest automotive technologies, the challenges in managing these premium brands are expected to remain significant.
The Tata Motors? rights issue was not fully subscribed and they could not garner the required funds, said the Dolat Capital analyst. They will need additional funding, which is a cause of concern, he added.
Another negative factor for the stock was that the international rating agency, Standard & Poor?s ratings which on Wednesday affirmed its ?BB? corporate credit rating on Tata Motors with negative outlook while removing it from CreditWatch.
While the stock price of Tata Motors is down by close to 50 per cent from a month ago, Ashok Leyland is down by 33 per cent over the same period.
production target
Ashok Leyland is also planning to reduce its monthly production target for November to 1,500 units from the average of 6,800 units it clocked each month in the first six months of this fiscal, according to sources.
The volume decline is substantial in case of Ashok Leyland and the company has said its sales will be 15-20 per cent lower compared with last year, said an analyst with Dolat Capital Ltd.
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