BMW should buy Jaguar Land Rover from Tata Motors, says Bernstein

Tata Motors should look at selling its UK-based subsidiary, Jaguar Land Rover to German luxury car maker, BMW, which could fetch a valuation of 9 billion pounds to the Tata company, global brokerage firm, Bernstein has said.

In a report to its clients, Bernstein said BMW is over-capitalised and is awash with cash. “It (BMW) has run into the limits of growth for its product range and brand. Returns on capital from further expansion look questionable. By contrast, JLR could be acquired at a discount to book value. With BMW's help it could be returned to profitability,” it said. The Range Rover has huge gross margins but is being swamped by fixed costs and problems on other product lines. BMW could quickly lower JLR’s investment costs and raise margins by leveraging its own platforms, powertrains, purchasing scale and quality control. The value creation would be substantial and could boost BMW earnings by 20 per cent, the report said.

For Tata group, the problems at JLR look daunting, the brokerage said. "It’s been an amazing 10 years, with many successes, but we believe the company needs to find a strategic solution for JLR. Proceeds of £9 billion would mean upside for Tata Motors share price, especially if Tata could articulate how the capital would then be redeployed,” the report said. Read Complete Article