TANMAY OBSERVES!

Behind the Nano Hype

If only Tata Motors could use press clippings to pay its bills.

Tata's Nano -- dubbed the world's cheapest car -- will be launched Monday. Built to bear a price tag as low as $2,000, it has garnered much hype.

But the little car won't get Tata out of a big jam. The company has a $2 billion debt due in June -- residue from last year's ill-timed acquisition of Jaguar Land Rover -- and little cash to cover it.

Until Tata explains how it plans to resolve that problem, Nano hype will be short-lived.

Conventional wisdom is that Tata will manage to sell as many Nanos as it can build. Initially, this won't be many.

The target of a political campaign in West Bengal state, Tata's nearly-completed Nano production facility was abandoned in October, despite a $300 million sunk investment.

So, the car is being built on Tata's other production lines until a dedicated facility is erected in Gujarat. Tata won't, then, reach its production goal of 250,000 cars a year until sometime after plant's completed in a year's time, estimates Angel Broking analyst Vaishali Jajoo.

In the meantime, she reckons, the most Tata will be able to produce is 50,000 Nanos in the year ahead. Tata hasn't said when the factory will be ready, but more details could trickle out during Monday's launch event.

In the meantime, the company faces tumbling sales and alarmingly low cash balances; a month ago Tata said it had only $100 million on hand. On top of the $2 billion it owes for Jaguar, Tata had another $2.7 billion in net debt as of end-December, accumulated from loans raised for operational expenses.

As it goes about raising new funds, its borrowing costs will surely rise; ratings agencies have already cut Tata's debt.

The company has secured some financial aid from its parent, Tata Group. But it has since failed to announce any agreements to roll over the Jaguar debt or arrange other solutions -- such as selling part or all of the luxury brand.

Investors recently have found solace in the fact that low interest rates are spurring sales of passenger cars in India. The government's recent cut in excise taxes is a boon too.

But Tata's share gains have nearly doubled those of competitors since the Nano's launch date was announced in late February. Nano fever's in full throttle, warranted or not. (Source: DJ)