Business Analysis and Valuation

Dr. Aprajita Pandey

BITS Pilani Department of Economics and Finance
Pilani Campus
 BITS Pilani
Pilani Campus

Lecture No. 6 Tata Motors (M&A)

 Challenges

• Tata Motor’s main challenge was to de-risk the cyclical nature of its commercial
truck business.
• The company sought to do this by moving into less cyclical segments, such as light
commercial vehicles and buses; by expanding non-vehicular business, such as spare
parts services; and by expanding its commercial vehicle business into foreign
markets with a different phasing of cycles.
• Tata motors was compelled to internationalize because of the intensifying foreign
competition in its home market and the need to get an advanced feel for where the
market might be headed.

BITS Pilani, Pilani Campus

Change C
Tata Motor and Nano- A dream turned bad
• A very emotional story by Ratan Tata, was a dream project for him
• Wanted to fulfill the dream of Indian middle class by building an
affordable car under 1 lakh rupees.
• Building “Cost Leadership Strategy” which no other player could
match
 What went Wrong
• Tata Nano was marketed as the cheapest car, thinking that it was
enough to motivate people to buy it.
• But people did not want to be associated with a cheap car.
• Also, people thought that cost-effectiveness would come with quality
compromises. Thus, bad marketing caused Tata Nano's failure.
• Delays during the production line migration from Singur to Sanand,
early cases of the Nano bursting into flames, the impression of the
vehicle being perilous, and compromise in quality due to cost slicing
are some of factors behind Tata's failure to attract Indians.
• never gained traction despite being termed as the 'people's car'
Tata Motor and JLR- An Indian dream
• On June 02, 2008, India-based Tata Motors completed the acquisition of
the Jaguar and Land Rover (JLR) units from the US-based auto
manufacturer Ford Motor Company (Ford) for US$ 2.3 billion, on a cash
free-debt free basis.
• JLR was a part of Ford’s Premier Automotive Group (PAG) and were
considered to be British icons. Jaguar was involved in the manufacture of
high-end luxury cars, while Land Rover manufactured high-end SUVs.
• Touted as a very emotional decision (patriotic passion fueled)
• Who will buy car in India priced at 1 Cr ?
 What Business strategy ? Differentiation
• The acquisition would help the company acquire a global footprint and enter the
high-end premier segment of the global automobile market.
• After the acquisition, Tata Motors would own the world’s cheapest car – the US$
2,500 Nano, and luxury marquees like the Jaguar and Land Rover.
• Tata also got two advance design studios and technology as part of the deal. This
would provide Tata Motors access to latest technology which would also allow
Tata to improve their core products in India, for eg, Indica and Safari suffered
from internal noise and vibration problems.
• This deal provided Tata an instant recognition and credibility across globe which
would otherwise would have taken years.
• The cost competitive advantage as Corus was the main supplier of automotive
high grade steel to JLR and other automobile industry in US and Europe.
How did the market see it ?
• Morgan Stanley reported that JLR’s acquisition appeared negative for Tata
Motors, as it had increased the earnings volatility, given the difficult
economic conditions in the key markets of JLR including the US and
Europe.
• Moreover, Tata Motors had to incur a huge capital expenditure as it planned
to invest another US$ 1 billion in JLR. This was in addition to the US$ 2.3
billion it had spent on the acquisition.
• Tata Motors had also incurred huge capital expenditure on the development
and launch of the small car Nano and on a joint venture with Fiat to
manufacture some of the company’s vehicles in India and Thailand.
• This, coupled with the downturn in the global automobile industry, was
expected to impact the profitability of the company in the near future.
 How is JLR doing now ?
• British luxury car maker Jaguar Land Rover (JLR), a wholly owned subsidiary of
Mumbai-headquartered automobile giant Tata Motors, posted a 30 per cent year-
on-year (YoY) jump in wholesale volumes and 29 per cent growth in retail sales in
the June quarter of 2023-24 (Q1FY24) on improved supply of semiconductors.
• JLR India reports best-ever Q1 sales; saw 102% YoY growth in Q1 FY24
• Wholesales in Q1 FY24 were 93,253 units, up 30% vs. Q1 FY23 (wholesales exclude
China JV)
• Retail sales in Q1 FY24 were 101,994, up 29% vs. Q1 FY23
• Order book remains strong at 185,000 units, reflecting strong client demand

• JLR accounts for nearly 60 per cent of Tata Motors’ revenue from
operations.
Tata Group Structure

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