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TTM AT A GLANCE

P/E ► -116   EV/EBITDA ► 142 VERY HIGH ROA ► -0.2% AVG ROE ► -3.6% AVG Debt to Equity ► 11.2 VERY HIGH Current Ratio ► 1.02 AVG Interest Coverage Ratio ► -0.103 AVG

 

 

 

 

 

 

Established in 1945, Tata Motors Limited (NYSE:TTM) is India's largest automobile company with revenues of Rs 31,884.69 crore in FY 2007.^[1] It is the largest producer of commercial vehicles, and the second largest in the passenger vehicles market in India.^[1] The company is the world's fifth largest medium and heavy commercial vehicle manufacturer, and the world's second largest medium and heavy bus manufacturer.^[1]

Over 4 million Tata vehicles ply on Indian roads.^[1] It is the first company from India's engineering sector to be listed in the New York Stock Exchange. In its efforts to internalize its operations, Tata Motors acquired the Daewoo Commercial Vehicles Company, Korea's second largest truck maker in 2004.^[2] Two-thirds of heavy commercial vehicle exports out of South Korea are from this subsidiary.^[1] It also acquired Jaguar Land Rover to gain a foothold in the luxury sports car and SUV market in June 2008.^[3] It paid $2.3 billion for the deal and raised 3 billion bride loan for the deal.^[4]The Jaguar Land Rover unit after posting profit in FY2007, again started loosing money and posted a loss of $383million in the first 6 months of FY2008.^[5]

Business Overview

Tata Motors has diversified in to a range of activities all related to the automobile industry. Through its subsidiaries, the company is involved in engineering and automotive products, construction equipment manufacturing, automotive vehicle components manufacturing and supply chain activities, machine tools and factory automation products, high-precision tooling, electronic components for automotive and computer applications, and automotive retailing and service operations.^[6]The company's manufacturing base is spread across India. In the east they are based in Jamshedpur (Jharkhand). Pune (Maharashtra) is their main centre for the west. In the north Lucknow (Uttar Pradesh) and Pantnagar (Uttarakhand).^[7] A new plant to manufacture Nano which was being constructed in West Bengal has been moved to Kuch District in Gujarat.^[8]

TTM focuses on Research and Development and has over 2,500 engineers and scientists working for the company’s Engineering Research Centre.^[7] The company has R&D centres in Pune, Jamshedpur, Lucknow, in India, and in South Korea, Spain, and the UK.^[7] It has developed the first commercially viable prototype of air power car.^[9] On 25th July 2008, It also announced to launch the electric version of Nano in Europe by Dec 2009.^[10]The company’s dealership, sales, services and spare parts network comprises over 3500 touch points; TTM also distributes and markets Fiat branded cars in India.^[7] The company also has a strong auto finance operation, TML Financial Services Limited, supporting customers to purchase Tata Motors vehicles.^[11]The company actively markets its passenger cars and commercial vehicles to countries in Europe, Africa, the Middle East, Australia, South East Asia and South Asia.^[12] It has its operations in more than 40 countries across six continents, and its companies export products and services to 140 nations.^[12]

Business and Financial Metrics

From FY2003 to FY 2007, sales revenues have grown from Rs 10,840.70 crore to Rs 31,884.69 crore, at average annual rate of over 38%.^[13] In the same period, net profit grew by over 107% average annual growth rate.^[13]. In FY2008, due to general economic slowdown, the sales of TTM in the quarter ending December fell by 43% as compared to the same quarter in FY2007. With the fall in sales, the operating margin fell from 11.5% to 1.64% and the net profit margin fell from 9.03% to -5.42%.^[14]For the first time in 7 years, TTM posted quarterly loss in Dec 2008.^[15]

Tata Motors revenues and net profit^[13]

The total debt to equity ratio of TTM has risen steadily from 0.53 in March 2006 to 0.8 in March 2008.^[16] This has been due to a thrust on research & development activities. After the buyout of Jaguar Land rover using bridge loans, the debt to equity ratio has gone up to 1.21.^[17] Tata Motors has further announced to inject more equity capital in to the balance sheet of Jaguar Land rover as and when required to stave off an immediate cash crisis.^[18]

Tata Motors Total Debt/Equity ratio^[16]

Tata Motors operating margin and net margin FY2008^[14]

Share holding pattern: The promoters namely, Tata Sons and group companies, owns 41.78% of TTM. The promoters stake increased from 33% to 41.78% after additional Rs 3,000 crore were invested after to buy the unsubscribed portion of the rights issue in Oct 2008. Banks financial institutions and Insurance companies own another 15.21%. DSP BlackRock Top 100 Equity Fund and SBI Magnum Tax Gain Scheme are the mutual funds invested in the firm, with 0.109% and 0.098% ownership respectively.^[19]

Business segments

Tata Motors operates in four main automobile segments which cover the range of products in the automobile segments in India.

Tata Motors segment wise units sold^[21]

Passenger Cars:(30.5% of total units sold) This segment accounts for 30.5% of the total production volume.^[21] During FY 2008, 182,292 units of gasoline and diesel engine versions were manufactured and sold.^[21] This division also distributes Fiat branded cars in India.^[22]TTM has a presence in the compact car, mid-sized car and station wagon segment of the market in the form of Indica, Indigo and Indigo Marina and their variants.^[23] In FY 2008, the passenger car industry grew by 11.9% in India, but the TTM sales in this segment declined by 7.3% due to no new product launches.^[21]The market share of TTM in this segment declined from 15.6% to 13.3%.^[24] All the passenger cars are manufactured at plants at Pimpri and Chinchwad district in Maharashtra.^[25]

Tata Motors is in the process of launching "Nano", an affordable family car with a price tag of Rs. 1,00,000(around $2200) for the developing world. The project was delayed as the public opposition and political problems forced the management to abandon the plant site at Singur, West Bengal and shift it to Gujarat.^[26] TTM has announced that the car would be launched by the end of March 2009.^[27]

Utility Vehicles:(8.4% of total units sold) TTM entered the utility vehicle with the launch of Tata Sumo in 1994.^[28] Later it also entered SUV segment with the launch of Tata Safari in 1998.^[28] This segment accounts for 8.4% of the total production volume.^[21] The sales in this segment were 47,530 units, a decline 0.8% as compared to 47,892 units in FY 2007.^[28] The overall market share in this category is 20.1%.^[28] TTM lost 2% of the market share due to lack of any new, product or a variant of the existing product in this segment.^[28]All the utility vehicles are manufactured at plants at Pimpri and Chinchwad district in Maharashtra.^[25]

Light Commercial Vehicles:(29.1% of total units sold) TTM manufactures light commercial vehicles including pickup trucks, trucks and buses with gross vehicle weight(GVW) of between 0.7 ton and 7.5 tons.^[29] This segment grew by 17.2% growth to 147,316 units sold in the Indian domestic market in FY 2008 and constituted 29.1% of the total units sold.^[30] TTM entered this category by indigenously developing a low priced product Ace(mini-truck) with a 0.7 ton payload in fiscal 2006. In FY2008, TTM launched two other products, Magic a passenger variant of Ace and Winger.^[30] It also announced to introduce CNG variant of the Ace, the Tata Cargo Panel Van, a lifestyle pickup truck(Xenon XT) and an office concept vehicle at the Auto Expo 2008 in India.^[30]TTM has a market share of 64.2% in this segment.^[24] The light commercial vehicles are manufactured at plants in Lucknow and Uttarakhand, Uttar Pradesh.^[25]

Medium and Heavy Commercial Vehicles:(32% of total units sold) TTM manufactures medium and heavy commercial vehicles which include trucks, buses, dumpers and multi-axled vehicles with GVW of between 9 tons to 49 tons.^[31] In addition, through Tata Daewoo Commercial Vehicle Company Limited, or TDCV, a wholly-owned subsidiary in South Korea, TTM manufactures high horsepower trucks ranging from 220 horsepower to 400 horsepower, including dump trucks, tractor-trailers, mixers and cargo vehicles.^[31]This segment constituted 32% of the total volumes in FY2008. During the same period it declined by 4.2% to 165,619 units as compared to FY2007.^[32]The decline was due to the lack of availability of vehicle finance from outside sources and constraints in the components and aggregates supply chain.^[32] TTM has a market share of 64.17% in this segment. In India, Tata motors manufactures the Medium and Heavy Commercial Vehicles at manufacturing plants at Jamshedpur, Chattisgard and Lucknow, Uttar Pradesh.^[25]

Key Trends and Forces

Economic slowdown resulting in adverse impact on the sales

Automobile industry is a cyclical industry. It is substantially affected by general economic conditions. The demand is influenced by factors including the growth rate of the economy, easy availability of credit, increase in disposable income, interest rates, freight rates and oil prices.^[33] Lack of vehicle finance availability, lower growth on GDP and/or increases in fuel prices lead to a decline in the demand for automobiles. The Indian economy has shown a sharp decline in GDP from 7.1% in the 2nd quarter of FY2008-09 to 5.3% in 3rd quarter of FY2008-09.^[34] The decrease in freight rates due to slowdown of economy also leads to decrease in demand for commercial vehicles as expansion of fleet size is stopped. The freight rates dropped by 9.4% in 2008.^[35] Despite the 62% decline in the international gasoline prices, the gasoline prices have dropped by only 10% in India.^[36] All this factors have affected the sales of TTM. In Feb 2009, the sales in commercial vehicles segment showed a decline of 53% as compared to that of Feb 2008.^[37] Furthermore, the turnaround and integration of the Jaguar and Land Rover business, might also be affected as the operations in over 165 countries have to managed for the acquired companies.^[33]

Timely launch of new products and turnaround of Jaguar Land Rover

Tata Motors bought Jaguar Land rover from Ford Motor Company in June 2008 for $2.3 billion. A bridge loan from a syndicate of banks were used to finance the deal.^[38] The success of the takeover depends on the ability of TTM to fully integrate with Jaguar Land Rover and turn around the business. The economic slump in 2008, has led to fall in sales of the cars and made turnaround of the business difficult. By Dec 2008, TTM had to refinance the bridge loans in order to adjust for the lower sales.^[38]The Jaguar Land Rover unit after posting profit in FY2007, again started loosing money and posted a loss of $383million in the first 6 months of FY2008.^[5]

TTM has lost market share in its passenger car and utility vehicles segment because of no new product launch. Although new variants have been introduced time and again, they have not been able to sustain the consumer interest as competitors have come up with new product launches.^[39] The Nano plant in Singur, West Bengal also had to be abandoned because of public protest and political complications. This has caused delays in the launch of Nano, which was originally scheduled to be launched in Feb 2009.^[40]

Currency and exchange rate fluctuations and its adverse effects on the earnings

The value of the Indian Rupee(INR) compared to the U.S. dollar impacts the value of ADR shares of TTM and its business operations. Tata Motor's stock is listed on the NYSE.^[41] An increase in the value of the INR translates to higher share price and dividend payments in the ADR shares all else constant. An appreciating INR can purchase more U.S. dollar. However, on the flip side, a strengthening INR adversely impacts the export earnings of TTM.The Company’s exports constitute 9.8% of the revenues and imports constitute 4.6% of material consumption.^[42] TTM undertakes steps to hedge the currency risk for its operational requirements, but a weakening of the rupee against the dollar or other major foreign currencies adversely affects the cost of borrowing and consequently increase the financing costs.^[42] Additionally, with the acquisition of Jaguar Land Rover, around 66% of TTM revenues are contributed by this subsidiary.^[43] The fluctuations in the value of the British Pound against the dollar and other currencies like Indian rupee would affect the net profits.^[42]

Competition

Passenger Cars:

• Maruti Suzuki India - Based in New Delhi, India. Maruti Suzuki India Limited is a subsidiary of Suzuki Motor (SZKMF) Corporation. It was formerly known as Maruti Udyog Limited. The Group's principal activity is to manufacture, purchase and sale of Motor Vehicles and Spare parts. The Group is a subsidiary of Suzuki Motor Corporation. The other activities of the Group comprises of dealership network of Pre-Owned Car Sales, Fleet Management and Car Financing. The Group also provides services like framing of customized car policies, economical leasing of cars, maintenance management, registration and insurance management, emergency assistance and accident management. The product range includes ten basic models with more than 50 variants. The Group has operations in over 1220 cities with more than 2628 outlets and also exports cars to other countries.^[44] It also exports its products to Asia, Africa, and South and Latin America.^[45]

• Hyundai Motor Company - Based in Seoul, South Korea, Hyundai Motor Company manufactures and distributes motor vehicles and parts worldwide. It offers passenger cars, recreational vehicles and commercial vehicles, including light commercial vehicles; medium and heavy duty trucks; special vehicles, such as refrigerated van truck, dry van truck, wing body truck, and trailer wing body/bottle carriers; medium and large size buses; and bare chassis.^[46]

• Honda - Headquartered in Tokyo, Honda Motor Co., Ltd., together with its subsidiaries develops, manufactures and distributes motorcycles, automobiles, and power products worldwide. Its motorcycle business manufactures motorcycles, all-terrain vehicles, and personal watercrafts. Honda’s motorcycle line consists of sports, business, and commuter models. Its automobile business offers passenger cars, multiwagons, minivans, sport utility vehicles and mini cars. The company also offers various financial services to its customers and dealers. In addition, it manufactures various power products, including power tillers, portable generators, general-purpose engines, grass cutters, outboard engines, water pumps, snow throwers, power carriers, power sprayers, lawn mowers, and lawn tractors. Honda sells its products through various outlets, wholesalers, and independent retail dealers.^[47]

• Toyota - Headquartered in Toyota City, Japan, Toyota Motor Corporation operates in the automotive industry worldwide. It designs, manufactures, assembles, and distributes passenger cars, recreational and sport-utility vehicles, minivans and trucks, and related parts and accessories. It also offeres hybrid vehicles. Its products also comprise conventional engine vehicles, including subcompact and compact cars, mini-vehicles, passenger vehicles, commercial vehicles,auto parts, mid-size models and luxury models.In addition, Toyota offers sports and specialty vehicles, recreational and sport-utility vehicles, pickup trucks, minivans and cab wagons, trucks and buses. Further, the company provides finance to dealers and their customers for the purchase or lease of Toyota vehicles. Additionally, it is also involved in the design and manufacture of prefabricated housing and information technology-related businesses, including intelligent transport systems and an e-commerce marketplace, called Gazoo.com.^[48]

Utility Vehicles:

• Maruti Suzuki India - Profile same as above.

• Swaraj Mazda - Headquartered in Nawanshahar district, Punjab, the Company's principal activity is to manufacture and sale of commercial vehicles and spares for both goods and passenger applications.^[49] The company has inked a technical assistance agreement with Isuzu Motors, Japan on Jun. 30, 2006. The agreement is for the expansion of vehicle production capacity, new assembly line for Isuzu vehicles and also setting up of in-house facilities for the manufacture of luxury buses based on existing Mazda and Isuzu chassis.^[50]

• Mahindra & Mahindra Ltd - The company manufactures a range of automotive vehicles, agricultural tractors, implements, and industrial engines. It is also involved in property development and construction activities. The company offers various multi utility vehicles, light commercial vehicles, three-wheelers, and tractors as well as spare parts and related services. It also provides various services related to financing, leasing, and hire purchase of automobiles and tractors. In addition it also offers design and engineering services to the automotive, aerospace, and general engineering industries; and produces automotive components, as well as forgings, gears, steel, stampings, and special polymers. It is headquartered in Mumbai, India.^[51]

Light Commercial Vehicles:

• Mahindra & Mahindra Ltd - Profile same as above.

• Ashok Leyland - Headquartered in Chennai, India, Ashok Leyland Limited Limited is involved in the manufacture and sale of commercial vehicles, and related components and accessories in India. The company offers various types of busses, trucks and other types of commercial vehicles; engines for industrial, genset, and marine applications; and defense and special vehicles. It also provides a range of spare parts for heavy engineering. It also offers design and engineering services to the automobile, power engineering, and aerospace sectors. In addition, it provides independent testing services in the areas of laboratory-based testing and data acquisition, simulation durability testing, NVH testing, road load data acquisition, safety testing and facilities management, and test laboratory consulting for auto original equipment manufacturers and their suppliers.^[52]

Medium and Heavy Commercial Vehicles:

• Ashok Leyland - Profile same as above.

Financial Comparison of the competitors:

Market share

TTM lost its market share in Passenger cars as no new model was launched, and the luxury car segment where TTM has no existing model, grew at a faster rate then the industry.^[60] The loss of market share in the utility vehicles was due to problems in production ramp up of the Sumo Grande model. Whereas the commercial vehicles market share dropped because of the lack of credit availability.^[61]Given below is the market share data for different segments in the industry.

Market share of Passenger cars in India^[66]

Market share of Utility vehicles in India^[67]

Market share of Light commercial vehicles in India^[68]

Market share of Medium and Heavy Commercial Vehicles in India^[69]

References

1. ↑ ^{1.0 1.1 1.2 1.3 1.4} The colours of India website, India's Largest Automobile Company
2. ↑ The Hindu, Tata Motors buys Daewoo unit
3. ↑ BBC News, Tata buys Jaguar in £1.15bn deal
4. ↑ Tata acquired Jaguar Land Rover for $2.3 billion
5. ↑ ^{5.0 5.1} Jaguar and Land Rover post $383m loss
6. ↑ Linkedin, company profile, Tata Motors
7. ↑ ^{7.0 7.1 7.2 7.3} Tata motors website, company profile
8. ↑ MASALA4MAZA blog post
9. ↑ Tata Motors' air-powered car -- green portfolio candidate
10. ↑ Economic times, Tata Motors to roll out electric cars
11. ↑ TATA motors website,Tata Motors sets up TML Financial Services Ltd., Press release, 25th August, 2006
12. ↑ ^{12.0 12.1} Tata Motors, press relese, 30th August, 2006
13. ↑ ^{13.0 13.1 13.2} Tata Motors Ltd, rediff money, annual result
14. ↑ ^{14.0 14.1} Tata Motors Ltd, rediff money, quaterly results
15. ↑ Business standard, Tata Motors posts first quarterly loss in 7 years
16. ↑ ^{16.0 16.1} Tata Motors Ltd, rediff money, ratios
17. ↑ advefin saxo bank Tata Motors
18. ↑ Tata plans to inject "tens of millions" into Jaguar, Land Rover
19. ↑ Money control, Tata Motors , MFs invested in TTM
20. ↑ Tata Motors share holding pattern, rediff Money wiz
21. ↑ ^{21.0 21.1 21.2 21.3 21.4} Tata Motors, SEC filing, Page 24
22. ↑ Fiat India website, Press Announcements
23. ↑ Tata Motors, SEC filing,Passenger cars, Page17
24. ↑ ^{24.0 24.1} Page 30,MANAGEMENT DISCUSSION AND ANALYSIS, Annual Report 2007-08
25. ↑ ^{25.0 25.1 25.2 25.3} annual report 07-08,Plant Locations, page 50
26. ↑ Business week, India: Modi Wins as Gujarat Gets Tata's Nano Plant
27. ↑ DWS Auto India, Tata Nano launch by March-end
28. ↑ ^{28.0 28.1 28.2 28.3 28.4} Tata Motors, SEC filing,Utility vehicles, Page17
29. ↑ Tata Motors, SEC filing,Light Commercial Vehicles, Page17
30. ↑ ^{30.0 30.1 30.2} Tata Motors, SEC filing,Light Commercial Vehicles, Page 24
31. ↑ ^{31.0 31.1} Tata Motors, SEC filing,Medium and Heavy Commercial Vehicles, Page17
32. ↑ ^{32.0 32.1} Tata Motors, SEC filing,Medium and Heavy Commercial Vehicles, Page 25
33. ↑ ^{33.0 33.1} Tata Motors, SEC filing, Risk associated with Our Business and the Automotive Industry, Page 10
34. ↑ [http://timesofindia.indiatimes.com/Slowdown-pulls-down-Indias-growth-to-53/articleshow/4199147.cms Times of India, GDP growth at 6-year low]
35. ↑ Freight rates begin to fall for World Merchant fleet
36. ↑ Indian express, Petrol to go cheaper by Rs 5 from Wednesday
37. ↑ Wheels un plugged, commercial vehicles sales decline
38. ↑ ^{38.0 38.1} Yahoo Finance, Tata Motors keeps spending on Jaguar Land Rover
39. ↑ Business line, Higher borrowing costs dent Tata Motors net
40. ↑ BBC News, Tata abandons cheapest car plant
41. ↑ NYSE euronext,Tata Motors Limited
42. ↑ ^{42.0 42.1 42.2} Tata motors, SEC filing,Risk associated with Our Business and the Automotive Industry, Page 10
43. ↑ Scribd, risks, Page 2
44. ↑ Wright reports, Maruti Suzuki India Ltd - Company Profile Snapshot
45. ↑ linkedin, Maruti Udyog Limited
46. ↑ Hyundai Motor Co, Company Description
47. ↑ Honda Motor Co. Ltd.,Company Description
48. ↑ Linkedin, Toyota
49. ↑ Alacra store, Swaraj Mazda
50. ↑ Swaraj Mazda Limited, business profile,myiris
51. ↑ Linkedin, Manendar and manendra
52. ↑ Linkedin, company profile, Ashak Leyland
53. ↑ , rediff money, maruti suzuki profile
54. ↑ , google Finance, Hyundai Motor Company
55. ↑ , Google finance, Toyota motor company
56. ↑ , Mahendra & Mahendra, Presentation
57. ↑ , Ashok Leyland rediff moneyt
58. ↑ , google finance, honda motor company
59. ↑ , rediff money, Swaraj Mazda
60. ↑ Business Overview page 30, annual report
61. ↑ Industry Structure and Developments, Commercial Vehicles, page 30, annual report
62. ↑ Auto Oberver - A Historic Year For US Vehicle Sales
63. ↑ ^{63.0 63.1}
64. ↑ [http://oica.net/wp-content/uploads/world-ranking-2007.pdf OICA - World Motor Vehicle Production, 2007]
65. ↑ [http://oica.net/wp-content/uploads/world-ranking-2008.pdf OICA - World Motor Vehicle Production, 2008]
66. ↑ Indian auto sector, passenger cars market
67. ↑ Indian auto sector, utility vehicles market
68. ↑ Indian auto sector, Light commercial vehicles market
69. ↑ Indian auto sector, Medium and Heavy Commercial Vehicles market