India Tata Motors at 3-yr low on outlook worries

By Rina Chandran

MUMBAI, June 30 (Reuters) - Shares in Tata Motors (TAMO.BO: Quote, Profile, Research), India's top vehicle maker, fell to a three-year low on Monday, leading losses in an auto sector struggling with high input costs, rising interest rates and slowing demand.

Shares in Tata, which is scheduled to launch the world's cheapest car later this year, fell 5 percent to 426.50 rupees, as investors were rattled by a bleak outlook for commercial vehicle sales, cost overruns on the Nano small car project and hefty fundraising plans.

It was the lowest close since June 2005 for the company which recently paid $2.3 billion for the luxury Jaguar and Land Rover brands, and took the fall in its shares in 2008 to 42.5 percent.

Tata Motors is seeking to raise $1.7 billion from three rights issues to help fund the acquisition, and is seeking a further $500-$600 million from an overseas equity issues.

"There is significant pressure from all sides," said V.G. Ramakrishnan, director of Frost & Sullivan's automotive and transportation practice, who expects commercial vehicle sales will be flat to slightly negative in 2008/09.

"For Tata, because of everything it has on its plate, and for the industry as a whole, the optimism we had even six months back has receded because of high oil prices and the impact of inflation and interest rates."

Shares in rival Mahindra & Mahindra (MAHM.BO: Quote, Profile, Research) fell 5 percent on Monday to 485.05 rupees, a 2-½ year low.

The auto sector index ended down 2.8 percent at 3,585.6, its lowest close since Nov 2005, in a Mumbai market that fell 2.5 percent as it posted its biggest monthly loss in 16 years.