Stock split: How Tata Motors got the timing horribly wrong

Tata Motors’ stock split could not have come at a worse time. It was only on Friday, Tata Motors’ Chief Executive Officer Carl-Peter Forster resigned with immediate effect, barely 18 months after joining the company. The stock was split in the ratio of one share for every five held on Monday. Face value of the share now stands changed to Rs 2, from Rs 10.

[caption id=“attachment_82001” align=“alignleft” width=“380” caption=“International portfolio managers have been reported to be not too enthusiastic about the CEO’s departure. Reuters”]  [/caption]

The result: The share, which closed at Rs 764.90 on the NSE on Friday, is currently trading at Rs 147.40. On a pre-split basis, its current value is Rs 737, lower by 3.65 percent over the previous close. The stock moved up after hitting a low of Rs 143.50.

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Though Indian broking firms have held back commenting, international portfolio managers have been reported to be not too enthusiastic about the development. Mads Kaiser, JI India Equity Fund’s portfolio manager from Silkeborg, Denmark, said he does not think Tata Motors is run as a one-man entity like Apple, but given the fact that Foster is an industry veteran and had made some positive changes at JLR, his exit is viewed as having adverse implications for the company.

The resignation also comes at a time when the group is looking for a successor to its Chairman, Ratan Tata. Forster is believed have been the turnaround man for Jaguar and Land Rover (JLR), with the international division contributing nearly 80 percent of Tata Motors profit in 2010-11.

But on Monday, Tata Motors seemed to play down the resignation, saying the sudden exit of Forster will not impact the future of JLR, stating that “it would be wrong to credit” the former executive for turning around the British marque.

Reacting to market speculation that Forster exited at a time when sales of JLR have not been encouraging enough could have had an impact on two of its brands and their turnaround, a company spokesperson said: “It would be wrong to credit Jaguar Land Rover’s turnaround to Carl-Peter Forster.”

Forster joined Tata Group in February 2010 after heading General Motors in Europe, with a clear mandate of reviving JLR. In 2008, Tata Motors had bought the company from Ford Motors for $2.3 billion. Revamp of the distribution set-up and financing options, along with a sustained promotion and improved warrant schemes, have put JLR back on track.