Japan's third-largest trading house Sumitomo Corp on Thursday denied that it was in talks with Tata Motors Ltd for selling its stake in Swaraj Mazda Ltd.

"Certain news agencies have today reported that Sumitomo Corp is in talks with Tata Motors for the sale of stake of Swaraj Mazda. However, this news report is not true," Sumitomo said in a note.

Established in 1983, automobile company Swaraj Mazda is owned by the Sumitomo Corp and Punjab Tractors Ltd with a technical collaboration with Isuzu and Mazda of Japan. Earlier in 2009, Sumitomo purchased Punjab Tractors' stake taking its shareholding to 53.5% in Swaraj Mazda.

Earlier, media reports said that Tata Motors, India’s largest vehicle maker, was negotiating to acquire Japanese conglomerate Sumitomo’s 53.5% stake in Swaraj Mazda and Tata Motors’ stake would go up to 73.5% if the open offer, which has to be at least 20% of the target company’s equity capital, is fully subscribed.

In the wake of new players—such as General Motors (GM) and its Chinese partner Shanghai Automotive Industry Corporation (SAIC) and a joint venture between Ashok Leyland and Nissan—entering the light commercial vehicles (LCV) segment, the move from Tata Motors was seen as a technology takeover rather than consolidation of stake in Swaraj Mazda.

Tata Motors has a market share of around 65% in the Indian commercial vehicle (CV) segment. Its share in the LCV market is higher, at around 68%. Swaraj Mazda, on the other hand, is a small player with just 3% share in the Indian LCV market, with a presence mainly in north India.

The Indian LCV market, valued at around Rs9,000 crore, is growing at 40% on an annual basis, faster than the commercial vehicle market as a whole. The Indian CV market is around Rs22,000 crore.

"Swaraj Mazda, which has a minuscule market share of 3% in the LCV market, will not help to increase Tata Motors’ share by a considerable amount. However this move will help to improve its presence in the northern region. Also, in the long term, Tata Motors will have access to Isuzu’s technology since Isuzu has an edge in diesel and hybrid technology," said Sandeep Patil, research analyst, Kisan Ratilal Choksey Shares and Securities Pvt Ltd, in a note.
— Yogesh Sapkale