TATA MOTORS

INTRODUCTION

Tata Motors established in India in 1945, is the largest automobile

company in the country, and it's a leading global manufacturer of cars,
city, vehicles, buses, trackers, and defence vehicles. Tata Motors is a
part of the Tata Group founded by Jamshedji Tata in 1968. In the world,
Tata Motors is recognized for its wonderful best in class technology,
design model Which we
have seen recently in
Tata Harrier and
Nexon. Not only in the
consumer sector but
also in a public
transport segment in
defence automobiles
Tata Motors left its
mark. Tata Motors
believes it will shape
the future of mobility in
India. They also believe the spirit of ‘giving back to society’ is embedded
into their DNA. One of the well-known subsidiaries of Tata Motors is
English premium carmakers Jaguar and Land Rover. They have also a
construction equipment manufacturing joint venture with Hitachi. Tata
Motors has its vehicle plants in Jamshedpur, Sanand, Dharwad, and
Pune in India and in Argentina, South Africa, Great Britain, and
Thailand.
Why Tata Motors?

Tata Group is one of the most trusted brands in India. In the

automobile sector, Tata Motors has done some incredible work on their
segment coming back from a slow start. Now they are producing some
wonderful cars in the market in terms of safety, comfort, and quality.
As an automobile company, they update themselves with the time and
now they are introducing
Electric vehicles in India
and, they are
implementing more
technologies to their
cars. So, we are
wondering that even
though this company
has such a backup of a
big brand like Tata and
their policies are so
incredible in terms of
social involvement and employee benefits and even though they are
doing losses in the market for consecutive years. Being a student of
management, we got fascinated by the workings of Tata Group and we
wanted to evaluate why Tata Motors were facing losses even though
being one of the biggest and most trusted brands in India.

OVERVIEW
• The Indian auto industry is one of the largest markets in the
world.
• Both in terms of vehicle usage and vehicle manufacturing. In
India, the first time a vehicle circulated on the road was in 1897.
• High demand for cars, two-wheelers and other vehicles has led to
the growth of the automotive sector.
• Major players in the market include Hyundai, Mahindra

Liquidity Ratio
 2019-2020 2020-2021
Current Assets 13568.76 Current Assets 15854.59
Current Liabilities 25810.82 Current Liabilities 26251.55
Current Ratio 0.53 Current Ratio 0.604

Current Assets 13568.76 Current Assets 15854.59

Current Liabilities 25810.82 Current Liabilities 26251.55
Inventory 3831.92 Inventory 4551.71
Quick Ratio 0.38 Quick Ratio 0.43

Cash and Cash Cash and Cash

Equivalents 3532.19 Equivalents 4318.94
Current Liabilities 25810.82 Current Liabilities 26251.55
Absolute Liquidity Absolute Liquidity
Ratio 0.136849 Ratio 0.165

*All values are in crores

• A company’s ability to meet its short-term obligations can be determined

by observing the company’s current ratio. The company’s Current Ratio is
0.604, however, comparing the company’s previous year current ratio of
0.526, we can interpret that the company is doing its best in improving the
management of working capital. The company has been able to meet its
short-term obligations better compared to last year.
 PROFITABILITY RATIO

*All values are in crores

31st MARCH 2020 31st MARCH 2021

Sales 45,311.22 Sales 47,874.43
Cost Of Goods Sold 36,958.82 Cost Of Goods Sold 39,645.25
Gross profit 8,352.40 Gross profit 8,229.18
Gross profit Ratio 18.43 Gross profit Ratio 17.19

Profit After Tax -7,668.35 Profit After Tax -1,952.45

Sales 45,311.22 Sales 47,874.43
Net profit Ratio -16.92 Net profit Ratio -4.08

PBIT -5,154.34 PBIT 45.97

Sales 45,311.22 Sales 47,874.43
Operating Profit Ratio -11.38 Operating Profit Ratio 0.096

Average Total Assets 61,749.75 Average Total Assets 63,825

Return on Assets -8.35 Return on Assets 0.072

Profit After Tax -7,668.35 Profit After Tax -1,952.45

Shareholders’ Equity 20,275 Shareholders’ Equity 18,722
Return On Equity -37.82 Return On Equity -10.43
 DU PONT ANALYSIS

RETURN ON EQUITY

2019-2020 2020-2021
Leverage ratio 3.0455953 Leverage ratio 3.409114775
TOTAL ASSET TOTAL ASSET
TURNOVER RATIO 0.7337879 TURNOVER RATIO 0.750091755
NET PROFIT RATIO -16.92 NET PROFIT RATIO -4.08
Profit After Tax -7,668.35 Profit After Tax -1,952.45
Shareholders’ Equity 20,275 Shareholders’ Equity 18,722
Return On Equity -37.82 Return On Equity -10.43

RETURN ON ASSEST

2019-2020 2020-2021
Average Total Assets 61,749.75 Average Total Assets 63,824.77
Sales 45,311.22 Sales 47,874.43
PBIT -5,154.34 PBIT 45.97
Return on Assets -8.35 Return on Assets 0.07

Return on Equity

• Leverage ratio has improved compared to 2019-2020 on 2020-2021 due to

increase in average total asset.
• Net profit ratio has improved from previous year due to improvement in
net profit.

Return on Asset

• Increase in Profit Before Interest and tax (PBIT).

• Increase in average total asset and sales.
1) Comment on profitability of the firm. Where does profitability come from?

Ans: Currently company is facing losses from past few years and the same is
shown using the key profitability ratios and the losses of the firm are coming
from majorly high interest charges, taxes, etc.

2) Check the trend (heading downwards or upwards) of the gross profit ratio,
operating profit, and net profit of sample firm. What are the reasons for the
same?
Ans:
Gross profit Ratio
Here we can see that company's gross profit ratio had declined even though
sales have increased, due to increase in cost of material consumed which
therefore led to increase in cost of goods sold.
Operating Profit Ratio

Since the ratio has increased from negative to positive which shows that
company has profit earning capacity. This was mainly due to reduction in
other expenses and reduction in foreign exchange losses.

Net Profit Ratio

Although the company is currently in loss but still as compared to previous

year losses has declined which shows that company is heading towards
covering its losses and this majorly happened due to reduction in tax
charges. And tax charges reduced due to reduction in GST rates by
government.

3) Whether the firm is under severe price pressure?

Ans: No, the firm is not under severe price pressure.
4) Do you see a significant difference in two profitability measures such as
operating profit and net profit ratios?

Ans: Here, we can see the firm has higher operating profit ratio as compared
to net profit ratio which implies that tata motors have high cost of debt.

5) How effective is your sample firm in utilizing total assets to earn profits
using Du-Pont analysis?

Ans: Here, we can see that on 31st March 2020 the ROA was negative means
firm was not able to utilize its assets to generate earnings but on 31st march
2021 we can see that the firm has now come up from negative return to
positive return which shows that company is now able to use assets to some
extent to generate earnings. this happened due to increase in current assets
such as bank balance, investments, and other financial assets (deposit with
financial institutions). Also, it is due to the operating profit ratio that ROA is
positive comparing to previous year.

6) Examine how effective is your sample firm in maximizing return on net

worth using Du Pont analysis.

Ans: Currently TATA MOTORS are not able to maximize its return. Du Pont
analysis shows that as compared to previous year (2020) this year (2021)
company can maximize its return. Major reason was due to improvement in
operational efficiency i.e., net profit margin.

7) Are ROA and ROE higher than the industry? Comment on it.
Ans: No, because company Return on Asset and Return on Equity are Very
low as compared to the industry Ratio.

8) How do non-operating expenses or incomes affect the earnings of sample

firms?

ANS: Currently TATA MOTORS non-operating expenses has the major impact
on the earnings of TATA MOTORS which includes Finance Cost, Depreciation,
 tax expense.

9) Also check whether change in accounting policy, if any, affects the

earnings of the firm?

Ans: No, as such there is no change in accounting policy of TATA MOTORS.

Therefore, no effect on the earnings.

Solvency Ratios
2019-2020 2020-2021
Equity 18387.65 Equity 19055.97
Total Liabilities 44202.22 Total Liabilities 46003.69
Debt to Equity (total debt) 2.40 Debt to Equity (total debt) 2.41

Equity 18387.65 Equity 19055.97

long term debts 18391.4 long term debts 19752.14
debt to equity (long term) 1 debt to equity (long term) 1.04

EBIT -5154.34 EBIT 45.97

Interest 1973 Interest 2358.54
Interest Coverage Ratio -2.61 Interest Coverage Ratio 0.02

Long term Debt 18391.4 Long term Debt 19752.14

Total Assets 62589.87 Total Assets 65059.66
Debt to Total Assets Ratio 0.294 Debt to Total Assets Ratio 0.304

Equity 18387.65 Equity 19055.97

Total Assets 62589.87 Total Assets 65059.66
Proprietary Ratio 0.294 Proprietary Ratio 0.293

*All values are in crores

1. Debt Equity Ratio (Long Term) = Long-Term Debt/Equity Share Capital

Here, The Ratio is Increasing from 2020 to 2021 due to the increase of non-
current liabilities. Some of the major reasons for increase in non-current liabilities
are,
• Increase in the Long-Term Borrowings which includes increase in bank
loan and senior notes.
• Increase in non-current Provisions that is increase in provision for onerous
contract.
• Increase in other non-current Liabilities which includes increase in
(Contract Liabilities, government incentives, Employee Benefit Obligation-
Funded)

2. Debt Equity Ratio (Total liabilities) = Total Liabilities/ Equity Share Capital

Here, The Ratio increasing from 2020 to 2021 due to the increase of long-term
liabilities and short-term liabilities. (Reason For increase in long-term liabilities is
stated above)
Reasons:
• Increase in the Short-term borrowings from 2020-2021 which includes
increase in bank loan, Inter corporate deposits from subsidiaries and
Commercial Papers (Schedule of repayment of senior notes).

• Increase in lease Liabilities.

• Increase in other current Liabilities which includes increase in (Current

maturities of long-term borrowings, Accrued Interest, Deposits and
retention money, Derivative Financial Instruments, option premium
payable, Liability for factoring sales and others)
3. Proprietary Ratio = Shareholder funds/Total Assets.
No Significant change in the ratio for the year 2020 and 2021 but there was
increase in total assets and decrease in Equity.
• Decrease in Equity share capital
• Increase in Total assets:
Increase in Current Assets
• Increase in cash and Cash
equivalents which includes
increase in bank Deposits.
• Increase in loan and advances .
as TATA motors given loan to its
subsidiary companies which
were TATA Motors European
Technical Centre Plc. (UK) and
TATA Precision Industries Private
Ltd.
• Increase in other Current Assets
which includes increase in
1. advance to supplier and
contractors.
2. Taxes Recoverable, statutory
deposits and dues from
government.
3. Prepaid expense.
4. Others.
Increase in non-current Assets
• Increase in the plant, Building
and equipment’s cost from the
year 2020 to 2021
• Increase in other intangible
Assets which includes increase
in cost spent on computer
software and Product
development.
• Increase in investments in
subsidiaries, joint ventures, and
associates. Like company
invested in its associates’
company which were TATA
Hitachi Construction Machinery
Company Private Ltd and TATA
AutoComp Systems Ltd.
• Increase in other Financial
Assets which includes increase
in Derivative financial
instruments and Government
incentives.
 Efficiency Ratio
2019-2020 2020-2021
Cost Of Goods Sold 36,958.82 Cost Of Goods Sold 39,645.25
Average Inventory 4246.96 Average Inventory 4191.815
Inventory turnover ratio 8.7 Inventory turnover ratio 9.5
Average Age Of Inventory 42 Average Age Of Inventory 39

Net Sales* 45,311.22 Net Sales* 47,874.43

Average Trade Receivables 2614.35 Average Trade Receivables 2032.785
Trade receivables turnover
Trade Receivables Turnover Ratio 17.3 Ratio 23.6
Average Collection Period 21 Average Collection Period 15

Net Sales 45311.22 Net Sales 47874.43

Average Total Assets 61749.75 Average Total Assets 63824.77
Total Assets turnover Ratio 0.73 Total Assets turnover Ratio 0.75

Purchases* 12,228.35 Purchases* 12,250.09

Average Trade Payables 9255.54 Average Trade Payables 8108.63
Trade Payables Turnover Ratio 1.321 Trade Payables Turnover Ratio 1.511
Average Payment Period 276 Average Payment Period 242

Net Sales 45311.22 Net Sales 47874.43

Average Fixed Assets 48350.72 Average Fixed Assets 49113.09
Fixed Assets Turnover Ratio 0.937136 Fixed Assets Turnover Ratio 0.974779

* Since, credit sales and purchases were not given in the annual report we have used net sales
and purchases to compute trade receivables turnover ratio and trade payables turnover ratio.

Comments

• Tata Motor’s last 2 year’s Inventory Turnover Ratio are 9.458 and 8.702.
Comparing to the year 2020, in the year 2021, the company’s Inventory
Turnover Ratio has improved. In the previous year, the company held 42
 days’ worth goods. But in the year 2021, even after increasing the
inventories, they have 38 days’ worth goods only. From this we can
observe that the company is expecting higher sales in the upcoming
years, so they have increased their inventories.

• Receivables Turnover Ratio helps us in identifying whether the company

has been collecting the payments regularly and whether the numbers are
moving in relation with the sales of the company. Looking at the
Receivable Turnover Ratios of both 2020 and 2021, we can observe that
the ratio in 2021 has improved considerably from 17.33 to 23.55. This
indicates that the company has been collecting the payments effectively
from the debtors and the receivables figures are moving along with the
sales figure. This can also be ensured by looking into the receivable
turnover days which was 21 days in the year 2020, and 15 days in the year
2021.

• Fixed Asset turnover ratio has increased from 0.937 in 2020 to 0.974 in 2021.
The reason for the increase is because net sales has increased from
45311.22 to 47874.43 in 2021. There has been increase in total sale of
products which includes sale of vehicles and miscellaneous products. This
ratio indicates effective utilization of fixed asset.

• The Trade Payable Turnover Ratio has increased from 1.321 in 2020 to 1.511
in 2021. The reason for the increase in ratio is because the decrease in Trade
Payables is more than the decrease in purchases. Average Trade payables
decreased from 9255.54 in 2020 to 8108.63 in 2021. This ratio indicates the
credit period enjoyed by the firm in paying off its creditors. This ratio
measures if they are making payments on time to creditors.

• The Total Asset Turnover Ratio has increased from 0.734 in 2020 to 0.7501
2021. The ratio has increased because Average total asset has increased
in 2021 compared to 2020. The reason is total assets has increased both in
2020 and 2021. In Fixed assets there has been an increase in Property Plant
and Equipment, Other financial assets, financial assets such as investments
and other financial asset in 2021 compared to 2020 and increase in current
assets such as cash and bank in 2021 compared to 2020. Overall, both
current assets and fixed assets have increased in 2021. An increase in ratio
indicates that they have been using their assets efficiently to generate
sales.
 Accounting Ratios as Relative to the Industry

RATIOS Maruti Suzuki Tata Motors Mahindra Industry Ratios

Net profit 9.74 -4.1 0.59 2.08
Current ratio 1.89 0.53 1.34 1.25
Quick ratio 1.44 0.38 1.08 0.97
ROA 15.42 0.07 0.45 5.31
ROE 21.8 -10.43 0.77 4.05
Debt to Equity 0.01 2.41 0.21 0.877
Inventory Turnover Ratio 13.84 9.5 11.39 11.58

TATA MOTORS is lacking behind with the huge difference in relative

Industry ratio. which shows that TATA MOTORS is not performing good
in the market as compared to other companies. Only debt to equity
ratio is increasing which shows that company is taking more and
more long term and short-term debts.
Contribution
• Helped in better understanding of Financial Statement
of the Auto Mobile Industry.

• Helped in Analyzing and Calculating the Financial Ratios.

• Helped in understanding the different accounting

policies which the TATA motors follow.

• Enhanced our Learning around Automobile Sector, Like

How the Industry is performing.

Limitation
• Difficulty in finding out the values for the ratios.

• Proper information about the Credit Sales

and Purchases were not given.

• Difficulty in understanding the Financial Statements.