TVS Motor and the Tata Group have something in common— the lure of struggling British icons
- Indian two-wheeler major TVS Motor announced the acquisition of Norton Motorcycles via a Singapore-based subsidiary at the height of the ongoing novel coronavirus crisis worldwide.
- The deal may remind one of the $2.3 billion acquisition of the then cash-strapped Jaguar Land Rover by Tata Group in June 2008, a few months before the global financial crisis exploded with the crash of Lehman Brothers.
- Both Tata Motors (in 2008) and TVS Motor (now), saw their respective deals as a marker for their prominence in the global arena.
- Pride, price, and potential may have driven TVS Joint Managing Director Sudarshan Venu to pick up Norton. However, investors will hope that he has considered the context and chronicles.
Indian two-wheeler major TVS Motor announced the acquisition of Norton Motorcycles via a Singapore-based subsidiary at the height of the ongoing novel coronavirus crisis worldwide. The deal may remind one of the $2.3 billion acquisition of the then cash-strapped Jaguar Land Rover (JLR) by Tata Group in June 2008, a few months before the global financial crisis exploded with the crash of Lehman Brothers.
Both Tata Motors (in 2008) and TVS Motor (now), saw their respective deals as a marker for their prominence in the global arena. "This will be one of the most interesting acquisitions of a storied motorcycle maker in recent times and will reflect TVS Motor Company’s and India’s rapidly rising prominence in the international two-wheeler market," a company statement said on April 17, 2020.
Norton Motorcycles was born in 1898, founded by James Lansdowne Norton, in Birmingham and is among the most popular British motorcycle brands of all time with a product mix ranging from classic models to an eclectic range of luxury motorcycles including super-bikes.
Pride, price, and potential may have driven TVS Joint Managing Director Sudarshan Venu to pick up Norton. However, investors will hope that he has considered the context and chronicles.
TVS has promised to help Norton "regain its full glory", just like the Tata group turned around JLR and ran it profitable for about six straight years before the markets turned for the worse.
|Parallels||Tata Motors' acquisition of JLR||TVS Motos' acquisition of Norton|
|Product and factories||Both “Jaguar” and “Land Rover” were still “great brands with advanced manufacturing units unlike Tata Motors||Norton is still an iconic brand and is known for premium motorcycles.|
|Timing||The acquisition came just before the global financial crisis exploded||The deal was struck at the height of the coronavirus pandemic|
|Post-deal scenario||Sales plunged in the wake of the 2008 crisis and JLR turned profitable only in 2010-11||Sales are likely to be slow even in the post-Covid world and the rest is too soon to predict|
|Health of the acquirer||Tata Motors was profitable at the time and had a healthy balance sheet but the company ended posting a loss right after acquisition. JLR's metal mostly came from Corus which was also owned by Tatas.||TVS Motor has a weaker balance sheet compared to its peers right now with an estimated debt of ₹1800 crore, according to Kotak Institutional Equities and a market cap of ₹14,000 crore.|
Since 2010, when JLR turned profitable for the first time since its acquisition, Tata Motors has invested about £25 billion in the company generating a profit of £7.9 billion, and free cash flow of £1.3 billion, according to research by BloombergQuint in February 2020. JLR has been struggling for about two years now and the future doesn't look very exciting either.
It is not necessary that the future of JLR and Norton be similar. However, aside from the quirks specific to the company and the product it sells, there are a couple of broader, contextual factors that are common for both British brands, and they impact the prospects of their owners, Tata Motors and TVS Motor respectively. The uncertainty of a post-Covid world has dwarfed the debilitating risks of Brexit, which was a significant threat by itself, is common for both the Tata Group and the Venu family.
TVS has its own issues to deal with too. "We have cut our earnings estimates by 16-35% for FY2020-22.. and cut our fair value to Rs240 (from Rs350 earlier)," a Kotak Institutional Equities report said in April 2020 projecting a fall in sales in India due to the Covid-19 outbreak and sharp rise in costs due to the roll out for more stringent emission norms called BS-VI. Kotak set the target price for the stock at Rs 240 compared to Friday's closing of about Rs 300.
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