Tata Motors Makes Its Move Out of Singur 9 comments
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Anyone who’s been watching the news on Tata Motors (TTM) is feeling pretty frustrated right now. I have the urge to wail every time I look at our loss on the stock. We’re sitting at 40% down, although, many of you may have hit your stop loss a while ago and sold out.
If not, you may want to sell your shares and buy back when TTM finds a bottom. But I’m in the stock for the long-term. And I think Tata can dig itself out of this hole.
What hole would that be? A grave dug by the less-than-above board (would that be "below board"?) government of West Bengal.
West Bengal, as a state, is a democracy the same way Sicily is. And unfortunately for us, one political party has decided the construction of Tata’s new car factory in Singur (a city of 20,000 people about 30 miles northwest of Kolkata) is the perfect opportunity to clean up the state’s corruption.
Whose Land Is It, Anyway?
Tata bought the property for its Singur factory, which is supposed to begin pumping out the company’s revolutionary (for its $2,260 pricetag) Nano automobile later this year, from the West Bengal government. It’s too bad the government didn’t actually own the land to begin with (or maybe it did - you can’t be too sure), and it did the Indian equivalent of declaring eminent domain on a bunch of poor farmers to get said land.
This is where you should be thinking, "Wait a minute. You can’t declare eminent domain on land you’re planning to sell to a private enterprise (unless it’s 1869, and the U.S. government really wants a transcontinental railroad.)." The same is true in India.
But this is where the plot thickens: Property rights in West Bengal aren’t as clear as they are in the U.S. Some ideas of collective farming are leftover from India’s off-again, on-again dabbling in communism, and (take this with a grain of salt, it’s from Wikipedia) ownership is controlled not by deeds and leases, but by a contingent of politically connected "thugs" who dole out property like candy. So no one’s really confident about the actual legal ownership of the land Tata bought.
Politics Gets Ugly
And into this mishmash of land rights comes Mamata Bannerjee and her Trinamool Congress Party, who want to fight for the rights of the poor farmers (many of whom were quite happy with the government money they received for land that may or may not have been legally theirs).
Bannerjee, like other politicians in India, uses her followers as a weapon. Instead of going through legal channels, she orders protests that shut down major highways for weeks and trap Tata workers, terrified for their lives, inside the company’s factory for days on end.
The pro-factory side is just as volatile and possibly even less conscionable in its actions. After the state government fenced in the disputed property a couple of years ago, a few members of the political party opposing Bannerjee, who were guarding the property, were implicated in the rape and murder of a teenage protester.
So it’s all rather distasteful. Naturally, Tata wanted to continue in its current factory. But with neither side in the dispute willing to budge, the company, which could have brought much-needed income into the impoverished Singur economy, has decided to pull out of West Bengal altogether.
But a loss to West Bengal is a gain to another Indian state. Tata still plans to have the Nano on the market on time, meaning speedy (and very profitable) revamping of another of its six existing Indian factories.
Our Tata shares will see a rise when the company chooses a new site. But the real gains will come when the first Nanos go on sale, and again when Tata reports its first Nano profits.
Stock position: None.
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This article has 9 comments:
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Any article that appears after-the-fact is useless. The news about the Singur plant has been out since last year and responsible for a large part of the decline in addition to the additional debt for LR and Jaguar
Tata's are a well-connected business house and there is a reason they have been successful in India for the past 100 years where such protests are common place (though it is often a surprise to foreign investors). On top of this, the Nano is chairman Ratan Tata's pet project. They already have other plants from where to crank it out. The demand for it is HUGE. Its already sold out in pre-booking and they will easily exceed their target for breaking even. I think by year-end this incident will be forgotten and the stock should rise by atleast 20%.
This is a major accomplishment on your part worth a proclamation ackowledging you as one of the few persons deserving the genuine appelation of being an India expert. However, you only got about 80% of the facts straightened out or listed. It is no mean accomplishment though. Hope you did not have someone fill in the blanks too much for yourself on this. Even then it serves the purpose.
Now you know why many of us highbrows and not so highbrows upward aspiring"Indians" have been over here as your hiumble guests or second class citizens/residents. The place back "home" is impossible to navigate for the most of us (who still call themselves NRIs, or non-resident Indians). Even with our US earned PhDs or business school credentials from the ivy leagues and other prestigious schools, we would just be babes in the woods in the urban jungles of India.
The real present India is frightening to many of us. This India which has been fashioned by the Nehru and his decendants (the Gandhis including the the Italian import} will perhaps always be an elusive dream --at least for our life-times. India needs a lot of "change" before the corrupt establisments spawning over its land, especially of the Left variety and that present in its GOP, are permanently dethroned and uprooted. But when will that day dawn when the huddeld masses of India get their freedom from the parasitic establishments?
Somehow the foreign markets have more faith in India's future than many of us descendants from the land of the Buddha, Rama and Gandhi. Hope the market is right, and we are wrong!
Tatas, the local Government, Mamamta and the Central Government are all grand-standing. Time and suffering are cheap commodities in India. The land problem may be solved this weekend or any day soon. At the end of the day most of the parties to the dispute, thriving under Big Brother's control of the Indian scene, do not want the car project to leave Bengal. Even so, I would still not buy TTM at this price level yet!
I'd rather own the other pieces of the Tata Group than the one that makes autos.
Bapcha