Team Name- ForeTraders (Khushi Chawla and Soham Gupta)

College Name- Fore School of Management

INDUSTRY ANALYSIS
In 2023, the Indian automobile industry stands out as one of the nation's largest and most dynamic
sectors, encompassing a diverse array of vehicles, from passenger cars to commercial vehicles, two-
wheelers, and three-wheelers. Its significance is underscored by the fact that it contributes 49
percent to India's manufacturing GDP and 7.1 percent to its overall GDP.

As of recent data, India's auto market has climbed to become the third largest globally, surpassing
Japan in 2022, and ranks fourth in commercial vehicle manufacturing in 2023. Projections suggest a
promising trajectory, with expectations of a 7 to 10 percent increase in the industry's size in the
upcoming fiscal year.

The driving force behind this growth lies in the escalating domestic demand for automobiles. Factors
such as a burgeoning middle class, rising disposable incomes, enhanced road infrastructure, and
accessible finance options have collectively propelled the demand for vehicles.

According to ICRA, an independent investment information and credit rating agency, the outlook for
the fiscal year 2024 reflects robust growth across various automotive segments:

- Passenger vehicle segment: Anticipated growth falls within the range of 6-9%.

- Commercial vehicle segment: Growth prospects are even stronger, projected at 7-10%.

- Two-wheelers (tractors): Expected growth ranges from 6-9%.

- Three-wheelers (motorcycles, mopeds, and scooters): Growth expectations hover around 4-6%.

Shamsher Dewan, Senior Vice President at ICRA, underscores this positive outlook, emphasizing that
high single-digit growth is expected across automotive industry segments in the upcoming fiscal year.
He attributes this growth to favorable demand drivers that continue to propel volumes upward in
segments like passenger vehicles, commercial vehicles, and tractors. Even the two-wheeler industry,
while expected to experience moderate growth due to a low base, is poised for expansion.

Moreover, the 2023-24 Union Budget's emphasis on India's transition to sustainable transportation
alternatives has sparked increased interest among automotive companies. This strategic focus aligns
with broader global trends towards sustainability and green initiatives, further underlining the
potential for growth and innovation within India's automotive sector.

PORTER’S 5 FORCES
1. Threat of New Entrants

 High Capital Requirements: Setting up manufacturing facilities and R&D for automotive
production requires significant capital investment, acting as a barrier to entry.
 Economies of Scale: Established players benefit from economies of scale in manufacturing,
purchasing, and distribution, making it challenging for new entrants to compete on cost.
 Regulatory Barriers: Strict government regulations related to safety, emissions, and
manufacturing standards increase the complexity and cost of entry.
 Brand Loyalty: Established automotive brands enjoy strong customer loyalty and trust,
making it difficult for new entrants to gain market share.

2. Bargaining Power of Suppliers:

  Few Dominant Suppliers: The automotive industry relies on a few key suppliers for critical
components like engines, transmissions, and electronics, giving these suppliers significant
bargaining power.
 Switching Costs: Switching suppliers can be costly and time-consuming due to the
specialized nature of automotive components and the need for quality assurance and
compatibility.
 Forward Integration: Suppliers may threaten to integrate forward into manufacturing or
distribution, posing a potential threat to automakers.
3. Bargaining Power of Buyers:

 Fragmented Buyer Base: While individual consumers have limited bargaining power, fleet
buyers and rental companies wield more influence due to their bulk purchasing.
 Price Sensitivity: Consumers are often price-sensitive, especially in mature markets, forcing
automakers to compete on pricing and incentives.
 Access to Information: The availability of information online empowers buyers with
knowledge about pricing, features, and reviews, increasing their bargaining power.
4. Threat of Substitute Products:

 Public Transportation: In urban areas, public transportation serves as a substitute for car
ownership, especially for commuting purposes.
 Ride-Sharing Services: Services like Uber and Lyft provide convenient alternatives to car
ownership for short-distance travel, particularly in densely populated areas.
 Bicycles and Electric Scooters: With the rise of bike-sharing and electric scooter rentals,
consumers have additional options for short-distance transportation.
5. Intensity of Competitive Rivalry:

 Numerous Competitors: The automotive industry is highly competitive, with numerous

global and local players vying for market share.
 Product Differentiation: Automakers differentiate their offerings through branding, design,
technology, and performance to gain a competitive edge.
 Price Competition: Price wars and incentives are common strategies to attract customers,
especially in mature markets with saturated demand.
 Industry Growth: Slow industry growth rates in mature markets intensify competition as
automakers fight for market share.
The automotive industry is characterized by high barriers to entry, strong supplier power, fragmented
buyer power, moderate threat of substitutes, and intense competitive rivalry.

Overview of Tata Motors: Driving Innovation, Shaping the Future

Tata Motors stands at the forefront of innovation in India's automotive landscape, spearheading a
transformation in transportation. With an extensive range of vehicles, cutting-edge solutions, and a
commitment to sustainability, Tata Motors is redefining the future of mobility.

Mission and Vision: The mission of Tata Motors is to innovate mobility solutions passionately,
enhancing the quality of life for all. The vision is to emerge as the most aspirational Indian
automotive brand by FY24, delivering superior financial returns, driving sustainable mobility
solutions, exceeding customer expectations, and nurturing a highly engaged workforce.

Culture Pillars: Tata Motors is built on pillars of boldness, ownership, collaboration, and empathy. Its
culture encourages agility, empowerment, accountability, and diversity, fostering an environment
where innovation thrives.
Journey: With a strong foundation rooted in heritage and values, Tata Motors envisions a future
where cargo and people mobility solutions are safer, sustainable, efficient, and accessible. Its journey
is driven by a commitment to societal impact and continuous advancement.

Leadership: Tata Motors' leadership guides the organization with purpose and values, steering
towards a safer, smarter, and greener future while enhancing the quality of life for all stakeholders.

Worldwide Presence: As a leading global automobile manufacturer, Tata Motors has a significant
presence in key markets worldwide. From SAARC to Sub-Saharan Africa, Tata Motors focuses on
delivering value and forging successful partnerships with customers.

Setting Industry Benchmarks: Tata Motors is known for setting industry benchmarks, combining
engineering excellence with a deep understanding of emerging trends and technologies. Its
commitment to innovation drives the creation of future-ready mobility solutions.

Company Profile: Tata Motors Group is a prominent global automobile manufacturer, offering a
diverse portfolio of vehicles, including cars, SUVs, trucks, buses, and defense vehicles. With
operations spanning across India, the UK, South Korea, and beyond, Tata Motors is synonymous with
innovation, excellence, and speed

SWOT ANALYSIS

COMPETITOR IDENTIFICATION
In the competitive landscape of the automotive industry, Tata Motors faces several key players vying
for market share and consumer attention.

Direct Competitors

1. Maruti Suzuki India Limited: As one of the largest automobile manufacturers in India, Maruti
Suzuki competes directly with Tata Motors in the passenger vehicle segment, offering a wide
range of popular models catering to diverse customer preferences.

2. Mahindra & Mahindra Limited: Mahindra is a significant player in both the passenger and
commercial vehicle segments, with a strong presence in SUVs and utility vehicles. Tata
Motors competes with Mahindra across various vehicle categories, including electric vehicles
and commercial trucks.
 3. Hyundai Motor India: Hyundai is known for its stylish and feature-packed vehicles,
competing directly with Tata Motors in the passenger car market. With a focus on innovation
and technology, Hyundai presents a formidable challenge to Tata Motors in terms of product
offerings and market positioning.

Indirect Competitors

1. Toyota Kirloskar Motor: While Toyota's primary focus is on quality, reliability, and innovation,
it competes indirectly with Tata Motors in the passenger vehicle segment. Toyota's
reputation for durability and fuel efficiency poses a challenge to Tata Motors' market share.

2. Honda Cars India Limited: Honda is another major player in the passenger vehicle segment,
offering a diverse portfolio of cars known for their performance and fuel efficiency. Tata
Motors competes with Honda in this segment, especially in the mid-range sedan and
compact SUV categories.

Global Competitors

1. General Motors: Despite withdrawing from the Indian market, General Motors remains a
global competitor to Tata Motors. With a presence in multiple countries, General Motors
competes in various segments, including passenger cars, trucks, and electric vehicles.

2. Ford Motor Company: Ford is known for its rugged and dependable vehicles, competing
globally with Tata Motors in various markets. While Ford has scaled back its operations in
India, it remains a significant competitor in other regions.

Electric Vehicle Competitors

1. Tesla, Inc.: As a pioneer in electric vehicles, Tesla poses a significant threat to Tata Motors in
the emerging electric vehicle market. With its innovative technology and brand appeal, Tesla
competes with Tata Motors' electric vehicle offerings both globally and in India.

2. Nissan Motor Corporation: Nissan's electric vehicle division, particularly with its Leaf model,
presents competition to Tata Motors in the electric vehicle segment. Nissan's global presence
and focus on sustainability make it a key competitor in the EV market

FINANCIAL ANALYSIS
Trend Analysis:

Income Statement

1. Sales and Growth:

 Sales have generally increased over the years, with some fluctuations. From ₹2,32,833.66 in
March 2014 to ₹4,01,785.26 in March 2023, indicating a growth of 72.62% over the period.
 Sales growth percentages fluctuate annually, with a significant increase of 24.25% in March
2023.

2. Cost of Goods Sold (COGS):

 COGS has also increased over the years, in line with sales growth, but with fluctuations.
 The percentage of COGS to sales has varied, peaking at 87.3% in the last twelve months
(LTM), indicating a higher proportion of sales being spent on production costs.
3. Gross Profit and Margins:

 Gross profit has fluctuated over the years, with a significant decrease in the LTM period.
 Gross margins have also fluctuated, indicating challenges in maintaining profitability at the
production level, with a decrease to 12.7% in the LTM period.

4. Selling and Other Expenses:

 Selling and other expenses have generally increased over the years, with fluctuations.
 However, in the LTM period, these expenses are not provided, indicating potential data
limitations.

5. EBITDA and Margins:

 EBITDA has fluctuated over the years, with a notable increase in the LTM period.
 EBITDA margins have shown a similar trend, with an increase to 12.67% in the LTM period.

6. Interest and Depreciation:

 Interest expenses have fluctuated but remained within a moderate range as a percentage of
sales.
 Depreciation expenses have increased over the years but have fluctuated as a percentage of
sales.

7. Earnings Before Tax (EBT) and Taxation:

 EBT has fluctuated, with significant negative values in some years and a positive value in the
LTM period.
 Effective tax rates have varied widely, with some years showing negative rates, indicating
potential tax benefits or credits.

8. Net Profit and Margins:

 Net profit has fluctuated significantly over the years, with notable losses in some years.
 Net profit margins have also fluctuated, with negative margins in several years, including the
LTM period.

9. Earnings Per Share (EPS) and Dividends:

 EPS has fluctuated, with significant declines in some years and a negative value in the LTM
period.
 Dividend per share has also varied, with some years showing no dividends.
 The dividend payout ratio has been inconsistent, with negative values in some years.

10. Retained Earnings:

 Retained earnings have generally increased over the years, except in March 2023, where it's
stated as 119.28% without further context.

Interpretation:

 Tata Motors Ltd has experienced significant fluctuations in financial performance indicators
over the years, indicating volatility in its operations.
  Profitability margins have been inconsistent, with periods of losses and declining margins.
 The company may be facing challenges in managing production costs, controlling expenses,
and generating sustainable profits.
 The negative EPS and net profit margins in the LTM period suggest recent financial
difficulties.
 The erratic dividend payments and payout ratios further reflect the company's inconsistent
financial performance.

Ratios:

1. Gross Margin:

 Gross margin represents the percentage of revenue that exceeds the cost of goods sold
(COGS). It shows how efficiently a company produces its goods.
 The gross margin has fluctuated over the years, reaching its lowest point in March 2020 at
19.42% and its highest point in March 2016 at 24.73%.
 A declining trend from 2016 to 2019 indicates potential challenges in controlling production
costs or pricing pressure.

2. EBITDA Margin:

 EBITDA margin measures a company's operating profitability as a percentage of its total

revenue, before interest, taxes, depreciation, and amortization expenses.
 The EBITDA margin has also fluctuated over the years, with a notable decrease from March
2018 to March 2020, indicating a decline in operating profitability.
 However, there was a slight recovery in the EBITDA margin in March 2021 and March 2022.

3. EBIT Margin:

 EBIT margin, or operating margin, represents the percentage of revenue that remains after
deducting operating expenses.
 The EBIT margin has shown a declining trend over the years, indicating decreasing
profitability from operations.
 This suggests that the company may be facing challenges in controlling operating expenses
or generating sufficient revenue to cover these costs.

4. EBT Margin:

 EBT margin represents the percentage of revenue that remains after deducting interest and
taxes but before accounting for other expenses.
 The EBT margin has also declined over the years, indicating decreasing profitability before
accounting for taxes.
 A negative EBT margin in certain years suggests that the company's operating income is
insufficient to cover interest expenses.

5. Net Profit Margin:

 Net profit margin measures the percentage of revenue that remains as net income after all
expenses, including taxes and interest.
 The net profit margin has fluctuated over the years, with significant declines in profitability in
March 2020 and March 2021.
  Negative net profit margins in some years indicate that the company incurred losses during
those periods.

6. Return on Capital Employed (ROCE):

 ROCE measures the efficiency and profitability of a company's capital investments.

 The ROCE has fluctuated over the years, with a significant decline in March 2019 and March
2020, indicating lower returns on capital employed.
 A positive ROCE indicates that the company is generating returns higher than the cost of
capital.

7. Return on Equity (ROE):

 ROE measures a company's profitability relative to shareholders' equity.

 The ROE has also fluctuated over the years, with a significant decline in March 2019 and
March 2020, indicating lower returns for shareholders.
 Negative ROE values suggest that the company's net income is insufficient to cover
shareholder equity.

8. Price to Earnings Ratio (P/E):

 The P/E ratio exhibited significant fluctuations over the years, remaining positive until 2018,
reaching a high of 56.60, indicating robust investor confidence during that period.
 However, post-2018, the P/E ratio turned negative, primarily attributed to unusual market
conditions, notably the impact of the COVID-19 pandemic, which eroded investor
confidence.
 Nonetheless, it's important to recognize that this downturn in the P/E ratio is likely
temporary, reflecting short-term market volatility rather than fundamental weaknesses in
the company.

9. Debtor Turnover Ratio, Creditor Turnover Ratio, Inventory Turnover, Fixed Asset Turnover, and
Capital Turnover Ratio:

 These turnover ratios measure the efficiency of a company in managing its assets and
liabilities.
 Fluctuations in these ratios indicate changes in the efficiency of the company's operations
and its ability to convert assets into revenue.

COST OF CAPITAL ANALYSIS AND FIRM VALUATION

Cost of Equity: -
The cost of equity is the return a company requires to decide if an investment meets capital
return requirements. Firms often use it as a capital budgeting threshold for the required rate of
return. The traditional formula for the cost of equity is the dividend capitalization model and the
capital asset pricing model (CAPM).

 Calculation of Beta- In order to calculate the Beta of our firm “ TATA Motors”, we have taken
into account the data from 2nd April 2018 to 29th December 2023 from NSE’s website in order
to reach at the average beta of last 5 years (2018-2023) of 3 competitors that we have taken as
a part of the industry (Maruti Suzuki, Mahindra and Mahindra, Hyundai).
 Calculation of Cost of Equity- For cost of equity calculation Rf is taken from the RBI website
 which is the rate of 364-Day Treasury Bill as on December 8, 2023 (latest). For Beta the above
calculated average beta is used i.e 0.66.Marker risk premium is taken as 8.33% as per the data
given by Aswath Damodaran. Finally cost of equity is calculated by CAPM
E(R)= Rf+ β*(E(Rm)- Rf)
 Cost of Debt: -The cost of debt is the effective interest rate a company pays on its debts. It’s
the cost of debt, such as bonds and loans, among others. The cost of debt often refers to the
before-tax cost of debt, which is the company's cost of debt before taking taxes into account .
The YTM refers to the internal rate of return (IRR) of a bond, which is a more accurate
approximation of the current, updated interest rate if the company tried to raise debt as of
today. Hence, the cost of debt is NOT the nominal interest rate, but rather the yield on the
company's long-term debt instruments.
 Weighted Average Cost of Capital (WACC): -The weighted average cost of capital (WACC) is a
calculation of a firm's cost of capital in which each category of capital is proportionately
weighted. All sources of capital, including common stock, preferred stock, bonds, and any
other long-term debt, are included in a WACC calculation. This technique of WACC is used by
investors to determine whether an investment is worthwhile, while company management
tends to use WACC when determining whether a project is worth pursuing.

WACC= 10.36%

VALUATION

We use the firm’s Weighted Average Cost of Capital as our discount rate and we set up the usual
discounted cash flow model by forecasting the firm’s entire net cash flows up to the horizon along
with a terminal value of the firm.

Cash flows are calculated

for 2019-2020 to find the
average growth rate.

This Average Growth Rate is used to forecast the cash flows upto 2028. On the basis of average
growth rate we would estimate future cash flows for next five years and after that growing at the 2 %
at perpetuity. Terminal value is calculated by assuming the constant growth rate of 2%.

Risk Identification and Impact Assessment:

1. Sales Growth: The fluctuating sales growth rates indicate potential volatility in demand or market
conditions. This could impact revenue stability and long-term growth prospects.
2. EBITDA Growth: The varying EBITDA growth rates reflect changes in operating profitability.
Negative growth in certain years suggests challenges in generating earnings before interest, taxes,
depreciation, and amortization, which may signal operational inefficiencies or external factors
affecting profitability.

3. Net Profit Growth: Similar to EBITDA growth, fluctuating net profit growth indicates volatility in
bottom-line profitability. Negative growth, especially in significant percentages, could be concerning
and may signal financial instability or inefficiencies.

4. Dividend Growth and Dividend Payout Ratio: The absence of dividend growth and the fluctuating
dividend payout ratio suggest inconsistent dividend policies. This may affect investor confidence and
attractiveness for income-oriented investors.

5. Interest Coverage Ratio: The declining trend in the interest coverage ratio implies potential
challenges in meeting interest obligations from operating income. A ratio below 1 indicates
difficulties in covering interest expenses, which may lead to financial distress or credit rating
downgrades.

6. Debtor Turnover Ratio, Creditor Turnover Ratio, and Inventory Turnover: These ratios measure
the efficiency of working capital management. Fluctuations in these ratios may indicate changes in
the company's liquidity position, inventory management, or credit terms with customers and
suppliers.

7. Earnings Per Share (EPS) Growth: Negative EPS growth in certain years highlights challenges in
generating earnings on a per-share basis. This could result from declining profitability or an increase
in the number of outstanding shares, diluting shareholder value.

Peer Comparison

1. Revenue:

 Tata Motors leads with the highest revenue of 3,45,966 crore, followed by Mahindra and
Mahindra with 1,21,268 crore and Maruti Suzuki India with 1,17,571 crore.
 Tata Motors has a significantly larger revenue base compared to its competitors.

2. Net Profit:

 Mahindra and Mahindra recorded the highest net profit of 9,869 crore, followed by Maruti
Suzuki India with 8,033 crore and Tata Motors with 2,353 crore.
 Mahindra and Mahindra have demonstrated stronger profitability compared to the other two
companies.

3. Earnings Per Share (EPS):

Mahindra and Mahindra have the highest EPS of 92.41, indicating higher earnings generated per
outstanding share.

Maruti Suzuki India follows with an EPS of 271.82, while Tata Motors has the lowest EPS of 6.29.

4. Return on Equity (ROE):

Mahindra and Mahindra also lead in terms of ROE with 18.24%, demonstrating higher returns
generated on shareholders' equity.
Maruti Suzuki India follows with an ROE of 13.28%, while Tata Motors has the lowest ROE of 5.32%.

5. Debt to Equity Ratio:

Tata Motors has the highest debt-to-equity ratio of 2.77, indicating a higher proportion of debt
financing relative to equity.
Mahindra and Mahindra have a moderate debt-to-equity ratio of 1.57, while Maruti Suzuki India
has a very low ratio of 0.02, indicating minimal reliance on debt financing.

Overall Analysis:
-Mahindra and Mahindra outperform Tata Motors and Maruti Suzuki India in terms of profitability
metrics such as net profit, EPS, and ROE.
- Tata Motors has the highest revenue but lags in terms of profitability and efficiency metrics.
- Maruti Suzuki India demonstrates strong financial health with a low debt-to-equity ratio and
competitive profitability metrics.
- The differences in financial performance reflect variations in business strategies, market
positioning, and operational efficiency among the three companies.

Conclusion:
Tata Motors presents an appealing investment opportunity marked by consistent growth across
different time frames. Its moderate Price-to-Earnings (P/E) ratio and substantial Earnings Per Share
(EPS) signify reasonable investor confidence and profitability. Moreover, the company's large
market capitalization underscores investor interest and faith in its future prospects.

However, the moderate Price-to-Book (P/B) ratio indicates that the stock is trading at a reasonable
premium, reflecting balanced growth expectations and market sentiment. Additionally, the
elevated beta suggests higher volatility, which may appeal to risk-tolerant investors seeking
potentially higher returns.

Recommendations:

For Long-Term Investors: Given Tata Motors' consistent long-term growth, it presents an attractive
option for investors with a long-term horizon.

For Risk-Tolerant Investors: It's important for risk-tolerant investors to consider the higher volatility
(beta) associated with Tata Motors. Despite this, they may find the stock appealing due to the
potential for higher returns.
Overall, Tata Motors offers a promising investment opportunity for investors with varying risk
appetites, backed by its consistent growth and market potential.