If bookings for the Nano go on expected lines, it would not only raise the stakes for Tata Motors in the domestic industry but could also provide a solution to its dire liquidity problems, albeit in an offbeat way.
The high booking amount ranging between Rs 95,000 and Rs 1.40 lakh for the world's cheapest car, along with the application form that costs Rs 300 apiece means that higher the number of bookings, the larger the amount of cash the company could hold in the short term.
A conservative estimate of one lakh bookings would result in Rs 1,100 crore as cash flow. If the bookings touch Tata Motor's own bullish estimate of 10 lakh, that could cross Rs. 11,000 crore.. Though the company has promised to pay an interest of 8.5 per cent for one year and 8.75 per cent for two years, it is not liable to pay interest until the allotment process starts.
The booking amount will ultimately lie with Tata Motors for their usage. "The funds will remain with Tata Motors and it is up to them, how they want to use it for the short term," said a banker on condition of anonymity.
The primary banker for the Nano, State Bank of India, and other banks also stand to gain in handling cash from the lottery-style advance booking money.
"For the banks this is another opportunity to cash in and make money," said Pradeep Saxena, Senior Vice President, TNS Automotive. "Not many would be able to pay the booking amount upfornt and initially the lower middle class may adopt a cautious approach. Finance is the only option for them."
Last month, Tata Capital had raised Rs 1500 crore through issue of non-convertible debentures, while Tata Motors also faces cash challenges related to the acquisition of UK-based Jaguar Land Rover. Tata Motors paid Rs 429 crore as interest in the April-December 2008 period, up 59 per cent from the year-ago period.
For chairman Ratan Tata, the challenge lies in digesting the JLR acquisition while making the Nano a success in volumes to justify the high debt burden. He may benefit somewhat from a global slump that could keep steel prices under control while driving demand for the small car.