Equity Valuation of TATA Motors

Presented by:
Amit Mukherjee Ritu Singh Tomar Richi Shrivastava Keshri. N.

Agenda
Fundamental Analysis
• Introduction to TATA Motors • Global Overview • Domestic Overview • Company Analysis • Current financials • Past performance • Future plans

Equity valuation
• Estimated future growth (calculation of ‘g’) • Expected return on equity (CAPM Analysis ‘k’ ) • Calculation FCFE • Intrinsic Value • Conclusion

TATA Motors Ltd
Founded: 1945 Founder: JRD Tata Headquarters : Mumbai, India Key people: Ratan Tata, Chairman Parent: Tata Group Subsidiaries: Jaguar Cars Land Rover Products: Automobiles and Engines Revenue :▲ USD 9.07 billion (2006) Net income:▲ USD $474.0 million (2006) • Tata Daewoo Website: http://www.tatamot

• Tata Motors Limited is India's largest automobile company, with revenues of Rs. 32,426 crores (USD 7.2 billion) in 2006-07. • It is the leader by commercial vehicles in each segment. • The company is the world's fifth M&HCV manufacturer, and the world's second largest medium and heavy bus manufacturer. • Annual turnover of over Rs 108 billion. • The company has manufacturing plants at

TATA Motors At-aGlance

Global Automobile Industry

Asian Automobile market Growth rate

• India is on every major global automobile player's roadmap. See why? • 4th largest commercial vehicle market in the world. • 11th largest passenger car market in the

Growth potential at Global Level

Growth Potential at Domestic level
• Sales of passenger cars in India is likely to grow at an average of 14.9% each year to touch the 2.1 million mark by 2010!

• Increase in automobile Purchase Trend
• Growing working population • Increased access to credit and lower interest loans • Increased consumer embrace of financial products • Upward migration of household income levels • Fast paced urbanization to rise from 28% to

Stunning Growth Rates! India car sales grew • Passenger

by 10.84% and crossed the 1 million mark in 200607 and record sales of 1,076,408 vehicles.

• Utility vehicles sales grew by almost 12.2% in AprilMay 2007 and this segment is expected to grow at 20% by 2010. • Multi purpose vehicles sales grew by almost 21.93% in April-May

Expected Growth by 201516
Potential Vehicle sales in India in 2015 - 06 ( in mn)

0.87 2015-16 27.8 0.64 2.65

0
Cars CVs

10
Two wheelers

20
Three Wheelers

30

• Expected to grow at 13% p.a over the next
decade to reach around USD 120 - 159 bn by 2016.

Exports Potential to become the Global Outsourcing Hub
Export of auto compone nts (USD million )
25%

1,800 1400 760 1020

456

625

578

FY00

FY01

FY02

FY03

FY04

FY05

FY06

• Indian vehicle exports- over 40 % over the
last few years, while Component exports -25 % per annum. Key exporters include:

• Tata Motors , Ashok Leyland, Maruti, M & M
and Hyundai

Government Regulations & Growth
•Allows automatic approval for foreign
equity investment upto 100% in the automotive sector.

•Weighted tax deduction of upto 15% for inhouse research and R & D activities.

• • TATA Motors, Ashok Leyland, Swaraj Mazda, Mahindra & Mahindra ,Force motors, Eicher Motors

Key players of Automobile sector Commercial vehicles

• Passenger vehicle • TATA Motors, Maruti Udyog, Honda Motors, Toyata, Skoda, Mahindra & Mahindra, GM, Ford, Hindustan Motors.

TATA’s Financials
mn Particulars Net Sales % age growth Net profit Mar ' 08
35,413 10.4 2,127

Rs in Mar ' 06
206022 18.27% 15288.8 23.6% 163220.50 39.94

Mar ' 07
32,067 35.8 2,127 21.5 191640.50 49.65

%age growth 3.4 B/S as on.. EPS (Rs.)
261182.60 52.63

CFPS (Rs.) Book Value
(Rs.) DPS (Rs.)

69.55
202.54 15.00

64.87
177.33 15.00

53.54
143.58 13.01

TATA’s
• • • • • • •

SHAREHOLDING

Indian Promoters : 33.7% Foreign collaborators : 0.0% Indian inst/Mutual Fund : 14.2% FIIs/GDR : 32.8% Free float : 19.3% Shareholders : 221,403 Listed on BSE: 500570 (scrip no.) NSE: TATA Motors NYSE: TTM

Projects 2008 & onwards
• Compressed Air Car • Tata Nano • Low cost low carbon vehicle • Land rover & Jaguar • Electric vehicles

Some facts of performance
• The company has incurred a capex of Rs 30bn till date and expects to spend another Rs 5-7bn in Q4FY08E. • Tata Motors Ltd’s net sales grew by 4.2% y-o-y while its net profit fell by 2.8% y-o-y. • Tata Nano was expected to be on the roads sometime in October,2008, but it is not.

Contnd…..
• Expected CV (Trucks) volume growth forecast by 13% for FY08-10E. • Expect large orders even from company like DTC (Delhi Transport Corporation), which is ordering 8,000 buses ($1bn order) in anticipation of the 2010 Commonwealth Games. • Planning to acquire Foreign Brands

• On the basis of Global, domestic & companies past growth and projected cash flows, we estimate that ‘g’ will be 6.55 in year 09, 10.2% in year 10 & constant thereafter.
Y/E March (Rs cr) Net Sales % chg Net Profit % chg EPS (Rs) FY2007 32,067 35.8 2,127 21.5 38.3 FY2008 35,413 10.4 2,053 3.4 40.0 FY2009E 38,366 8.3 1,921 6.5 34.3 FY2010E 42,202 10.0 2,116 10.2 44.9

Expected Growth Rate ‘g’

Calculation of ‘k’
• • • • Re= Rf+b(Rm-Rf) Rf=6% Rm=18-20% (or average 19%) B=0.8

• So, Re=6+0.8(19-6) =16.4%

Future Cash flows
Particulars Cash flow per share Value at terminal year 2008 (FCFE) 69.55 (given) (V2) 2009 (FCFE)@6.55 74.11 2010 (FCFE)@10.2% 81.67 =81.67/(.1640.066) =81.67/0.098 =833.37 =74.11/(1+0.06 6) =69.52 =833.37/(1+0.164 )^2 =617.3 =69.52+617.3 =686.82

Present value

Intrinsic value

Conclusion
• Current market price Rs. 500.15(NSE) & 500(BSE) • Intrinsic value Rs. 686.82 • Undervalued. • Buy Tata’s share, because it is underperforming due to its declining profit & sales figures in the last few years (because of heavy capital expenditure in some projects and foreign acquisitions, its

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