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Table of Contents

OUR BUSINESSES....................................................................................................... 1
COMMERCIAL VEHICLES.......................................................................................... 1
PASSENGER VEHICLES............................................................................................. 2
TATA MOTORS LIMITED............................................................................................... 2
Nature of the Industry............................................................................................. 2
Cost Components.................................................................................................... 3
Raw materials the biggest cost driver in the auto industry..................................3
FINAL CHECK LIST FOR BUYING STOCKS:...................................................................5

Tata Motors Limited, a USD 42 billion organization, is a leading global automobile


manufacturer of cars, utility vehicles, buses, trucks and defense vehicles.

OUR BUSINESSES

Tata Motors has a unique position among global leaders in the automotive segment with an
unmatched range in both commercial and passenger vehicles in a well-known brand
portfolio.

COMMERCIAL VEHICLES

For decades, Tata Motors has led Indias commercial vehicle market
from the front. Through our deep understanding of the customers
needs, we have consistently brought innovation to this industry
with new product segments such as the sub-tonne mini truck Tata
Ace as the ideal last mile delivery vehicle and the Winger mini bus
for short distance passenger travel to revolutionise the trucking
landscape in the country with market-leading products, applications
and services.

In our role as a game changer, we have introduced best-in-class


automotive technologies in India the globally benchmarked Prima
and Ultra enabling a world-class trucking experience, in terms of
performance as well as user comfort and convenience. As the fourth
largest bus manufacturer globally, we provide innovatively designed
and technologically superior buses for the smart cities of tomorrow.
The new buses personify safety and comfort, reliability and
profitability. Our global subsidiaries Daewoo Commercial Vehicles
Company and Marcopolo have only strengthened our portfolio.

As strategic partner to the Indian Armed Forces since 1958, we


provide defense, paramilitary and police mobility solutions through
our portfolio of light-to-heavy defense vehicles, including armored
troop carriers and high-mobility vehicles.

PASSENGER VEHICLES

Tata Motors leverages its years of auto expertise to design


creatively styled cars and SUVs that come pre-packaged with
technology, high-end features, connected solutions, a best-in-class
purchase experience, and the convenience of a seamless network
for after-market service.

Our customer-centric approach has led to the development of the


premium compact car Zest and hatchbacks Bolt and GenX Nano,
which offer a never-before combo of technology-rich features,
contemporary designs and rich ambience interiors

TATA MOTORS LIMITED

1. - Company has a good return on equity (ROE) track record: 3 Years ROE 22.89%

2. 10 years consistent track record of 27% sales growth, 33.85% PAT Growth and now
increasing sales margin.
Nature of the Industry

For a consumer, an automobile is usually the second most expensive purchase after a home.
A car is a durable good. So, a consumer can defer the purchase of a vehicle if the economy
isnt doing well. This makes the auto sector highly cyclical. The industry depends on a
number of broad-based economic indicators:

Unemployment levels

Consumer confidence
Disposable income
Credit availability

The automotive sector uses a wide range of materials in manufacturing. Metals such as
aluminium and steel, advanced plastics and other materials such as glass are used in most
modern automobiles. The pricing of materials is a significant expense for automakers and
fluctuations in price may change profit margins.

Cost Components

There are four major cost drivers in the production and sale of an automobile:

Raw materials

Labour

Advertising

R&D (research and development)


Raw materials the biggest cost driver in the auto industry
Raw materials contribute about 47% to the cost of a vehicle. On average, an
automobile is 47% steel, 8% iron, 8% plastic, 7% aluminum, and 3% glass. Other
materials account for the remaining 27%.

Approximately 22% of an automakers operational costs depend on steel. So, any


fluctuation in global steel prices has a direct impact on profitability. Steel billet
prices came down drastically from 15.2 euros per metric ton in 2008 to 4.8 euros per
metric ton in 2013. This significantly improved manufacturers gross margins.
During this period, the gross margins increased by 200 basis points, or bps, from
15.2% to 17.2%.

FINAL CHECK LIST FOR BUYING STOCKS:

Criteria Value Remarks


Financial Analysis
1. Sales Growth CAGR >15% for last 7-10 29.25% growth in last
years 10 years.
2. Profitability NPM >8% 33.85% overtime
3. Tax Payout >30% 35%, OK
4. Interest coverage >3 4.02>3, OK
ratio
5. Debt to equity < 0.5 0.95,
ratio
6. Current Ratio >1.25 1.04 need to improve on
it
7. Cash Flow CFO > 0 Positive CFO
8. Cumulative PAT cPAT ~ cCFO CFO-2,346.18, PAT-
vs CFO 11,023.75

Valuation Analysis

1. P/E Ratio
2. P/E to Growth
3. Earnings Yield > 10-year G-Sec yield 7.06%, greater than 10
year G-sec bond
4. Price to Sales < 1.5
5. Dividend More than 10% over 10 years 12.66%
Growth
6. P/B Ratio

Business and Industry Valuation

1. Comparison Sales growth >peers


with industry
peers
Comparison

2. Increase in Production Company has been able to


production capacity & sales increase sales by
capacity and volume CAGR ~Sales CAGR increasing capacity
sales volume
3. Conversion of Profit CAGR ~Sales CAGR 10Yr 29.25% sales
sales growth into growth resulting into
profits 33.85%
Pat growth showing
better margin also
Excellent.

4. Conversion of cPAT ~ cCFO


profits into cash
5. Creation of value Increase in Mcap
for shareholders in last 10 yrs. >
from the profits Retained profits in last 10 yrs.
retained

Management Analysis
A) Subjective Parameters
1. Background Web search No negative info,
check of except for the case
promoters & for Cyrus.P Mistry
directors case
2. Management Good succession Salary being paid to
Succession plans plan should be in place potential successors
should be in line with
their experience
B) Objective Parameters
3. Salary of No salary increase with Nil
promoters vs.net Declining profits/losses
profits
4. Project execution Green/brownfield project No negative news
skills execution found here. Have track
record of expansion
5. Consistent Dividend CAGR >0 Dividends has been
Increase in increasing with
dividend increase in profits of
payments the company
6. Promoter > 51% 34.73%
shareholding
7. Promoter Insider buying ++ Nil
buying the
shares
8. FII shareholding ~ 0% 26.11%

Other Business parameters

1. Product Pure play Purely focused on


diversification automobile sector with
trying to move up
value chain
2. Govt. influence No govt. Goods and Services tax,
interference in profit making will help the sector to
increase their profits.

Margin of Safety
1. MoS in Purchase EY > 10 Year G-Sec Yield EY more than 10 yr.
Price GSEC
2. Self- SSGR >
Sustainable Achieved Sales Growth Rate
Growth Rate
(SSGR)
Free Cash Flow FCF/CFO >> 0

Credit Rating
1. Credit Rating BBB- & above AA+
History