Tata’s Shares Drop on Production Cut Rumors image

Tata Motors’ shares dropped significantly due to reports that the automaker is cutting down production because of inventory pile-up and lower sales.

“Tata Motors is sharply pruning production as it grapples with falling sales and an inventory pile-up. In the past few months, it has seen its market share erode as competition intensifies in the compact car segment even as there is a dent in the sales in the utility vehicle range,” Economic Times reported.

In February, Tata sold 10,613 vehicles, a decrease of 70% from 34,832 vehicles sold over the same month in 2012. The fall reached the lowest level over the past six years. A steep fall was also seen in the utility vehicle segment, which includes the Safari, Aria and Sumo models, which sold only 2,844 units last month, even if the segment saw an increased demand.

“India’s automobile sector has been facing a tough time due to higher interest rates. The government’s reform initiative may now give some room to the Reserve Bank of India to start slashing interest rates which might benefit the sector and boost sales,” said an analyst tracking the sector.

During the fiscal year April-January, sales of the Tata Nano have dropped 7.29% to 50,836 units compared with 54,835 units in the last fiscal year.