1. Corporate Financial Reporting Project – Term I
Tata Motors
Section B
Apoorv Khandelwal 0065/48
Arnab Ganguli 0071/48
Aseem Mahanjan 0076/48
Ashish Anand 0079/48
Nair Vaishakh Venugopal 4017/18
2. Company Background
TATA Motors is a multinational automotive corporation headquartered in Mumbai, India. Part of
the Tata Group, it was formerly known as TELCO (TATA Engineering and Locomotive Company).
Tata Motors is India’s largest automobile company, with consolidated net profit of
9,274 crore (US$2.07 billion) in 2010–11. It is the leader in commercial vehicles and among the top
three in passenger vehicles. Tata Motors has products in the compact, midsize car and utility vehicle
segments. The company is the world's fourth largest truck manufacturer, the world's second largest
bus manufacturer, and employs 50,000 workers. Since first rolled out in 1954, Tata Motors has
produced and sold over 4 million vehicles in India.
Established in 1945, when the company began manufacturing locomotives, the company
manufactured its first commercial vehicle in 1954 in collaboration with Daimler-Benz AG, which
ended in 1969. Tata Motors is a dual-listed company traded on both the Bombay Stock Exchange, as
well as on the New York Stock Exchange. Tata Motors in 2005 was ranked among the top 10
corporations in India with an annual revenue exceeding INR 320 billion. In 2010, Tata Motors
surpassed Reliance to win the coveted title of 'India's most valuable brand' in an annual survey
conducted by Brand Finance and The Economic Times.
Tata Motors is equally focused on environment-friendly technologies in emissions and alternative
fuels. It has developed electric and hybrid vehicles both for personal and public transportation. It has
also been implementing several environment-friendly technologies in manufacturing processes,
significantly enhancing resource conservation.
Through its subsidiaries, the Company is engaged in engineering and automotive solutions,
construction equipment manufacturing, automotive vehicle components manufacturing and supply
chain activities, machine tools and factory automation solutions, high-precision tooling and plastic
and electronic components for automotive and computer applications, and automotive retailing and
service operations.
Tata Motors is committed to improving the quality of life of communities by working on four thrust
areas – employability, education, health and environment. The activities touch the lives of more than a
million citizens. The Company's support on education and employability is focused on youth and
women. They range from schools to technical education institutes to actual facilitation of income
generation. In health, our intervention is in both preventive and curative healthcare. The goal of
environment protection is achieved through tree plantation, conserving water and creating new water
bodies and, last but not the least, by introducing appropriate technologies in our vehicles and
operations for constantly enhancing environment care.
3. Key Accounting Policies of the firm
The financial statements are prepared under the historical cost convention on an accrual basis of
accounting in accordance with the generally accepted accounting principles, Accounting Standards
notified under Section 211 (3C) of the Companies Act, 1956 and the relevant provisions thereof.
Sales: The company recognizes sales on sale of products or net of products or when products are
delivered to the dealer or customer or when delivered to the carrier for export sales, which is when
risks and rewards of ownership pass to the dealer / customer.
Revenue recognition: Revenues are recognized when collectability of the resulting receivables
is reasonably assured
Dividend: Dividend from investments is recognized when the right to receive the payment is
established and when no significant uncertainty as to measurability or collectability exits
Income: Interest income is recognized on the time basis determined by the amount outstanding and
the rate applicable and where no significant uncertainty as to measurability or collectability exists.
Depreciation and amortization: Depreciation is provided on straight line method (SLM), at the rates
and in the manner prescribed in Schedule XIV to the Companies Act, 1956
Exchange differences: Transactions in foreign currencies are recorded at the exchange rates
prevailing on the date of the transaction. Foreign currency monetary assets and liabilities are
translated at year end exchange rates.
Inventories: Inventories are valued at the lower of cost and net realizable value. Cost of raw
materials and consumables are ascertained on a moving weighted average / monthly moving weighted
average basis
Investments: Long term investments are stated at cost less other than temporary diminution in value,
if any. Current investments are stated at lower of cost and fair value. Fair value of investments in
mutual funds is determined on a portfolio basis.
Income Tax Expenses: Income tax expenses comprise of current and deferred taxes. Current tax is
the amount of tax payable on the taxable income for the year as determined in accordance with the
provisions of the Income Tax Act, 1961. Current tax is net of credit for entitlement for Minimum
Alternative tax.
Deferred tax assets in respect of unabsorbed depreciation and carry forward of losses are recognized if
there is virtual certainty that there will be sufficient future taxable income available to realize such
losses.
6. Overall Analysis
Current Assets
Net Current Assets increased to Rs. 4,05.11 mn as at March 31, 2011 from Rs. 72.481mn as at March
31, 2010 mainly due to – (a) Increase in inventory due to volumes (b) Cash and bank balances
increase due to surplus cash at Jaguar Land Rover and (c) increase in Loans and advances
Current Liabilities
Current liabilities have increased due to increase in sundry creditors, reflecting the volume related
changes more particularly in the last quarter.
Property, Plant & Equipment
Property plant and equipment has increased from Rs. 1,040.728mn in 2009-10 to Rs. 1,786.958mn in
2010-11 due to product development projects at the company and Jaguar Land Rover, also due to the
establishment of new facilities for Nano and other capacity of the company.
Profit before Interest, Exceptional Items And Tax
Profit before Interest, Exceptional items and Tax has increased from Rs. 1,040.728mn in 2009-10 to
Rs. 1,786.958mn in 2010-11, reflecting significant turnaround during the year in the operations of
Jaguar Land Rover business.
CFO
The cash generated from operations reduced as compared to the previous year due to:
Increase in trade and other payables due to increase in manufacturing activity which was
partially offset by:
Increase in trade and other receivables due to increase in sales volumes.
Increase in inventories representing higher volumes/activity.
Increase in vehicle / loans and hire purchase receivables.
CFI
The net cash outflow from investing activity reduced during the current year as compared to the last
year.
Net cash used for purchase of fixed assets reduced. The capital expenditure relates mainly to
capacity expansion of product facilities and product development costs for proposed / new
product launches as well as on quality and reliability improvement projects.
During the year 2009-10, the Company sold 20% stake in Telcon, resulting in cash inflow of
Rs. 115.95mn
Net cash inflow from sale / redemption of other investments.
During 2009-10, the Company has sold part of its investment in Tata Steel.
During the year, the Company had invested in mutual funds.
CFF
The net change in financing activity was outflow of Rs. 140.129mn against net inflow Rs. 284.174mn
for last year.
In October 2010, the Company raised Rs. 324.98mn (net) by way of issue of shares through
QIP (against Rs. 179.419mn during the year 2009-10 by way of issue of GDS).
The net change in other borrowings during the year was a reduction by Rs. 116.768mn as
compared to increase of Rs. 419.796mn during the last year.
The cash outflow on account of dividend increased
The net cash outflow on account of interest reduced.
7. Ratio Analysis
Ratios for Tata Motors
2011 2010 2009 2008 2007
Liquidity Ratios
Working Capital = CA - CL -2164.63 -5834.61 -1143.82 -272.85 2784.05
Current Ratio = CA ÷ CL 87% 66% 89% 97% 138%
Quick Ratio 0.56 0.44 0.58 0.66 0.92
Financial Slack = Cash & Cash Equivalent ÷ Total Assets 2% 1% 3% 9% 4%
Operating Cash flow to Current Liabilities = CFO ÷ Avg(CL) 11% 51% 12% 75%
CFO to Total Liabilities = Cash Debt Coverage Ratio = CFO ÷ Avg(TL) 5% 24% 6% 45%
Inventory Turnover Ratio = COGS ÷ Avg (Inventory) 10.58 10.11 8.26 8.55
Receivables Turnover Ratio = NS ÷ Avg(A/R) 19.24 18.03 19.11 30.04
Solvency Ratios
Interest Coverage Ratio = Times Interest Earned = EBIT ÷ Interest
Expense
2.9200517 3.5633606 2.5048094 10.124447 9.2191842
Total Liabilities to Total Assets= TL ÷ TA 63% 71% 67% 70% 64%
Profitability Ratios
Fixed Assets Turnover = NS ÷ Avg(FA NB) 3.90 3.78 3.94 6.20
Current Assets Turnover = NS ÷ Avg(CA) 3.75 3.35 2.56 2.80
Average Age of Fixed Assets = Avg(A/D) ÷ Depreciation 5.78 6.54 6.73 7.98
Average Life of Fixed Assets = Avg(GB) ÷ Depreciation 14.86 15.70 14.22 15.13
Days of Inventory = 365 * Avg(Inventory) ÷ COGS 34.49 36.09 44.19 42.70
Days of Receivables = 365 * Avg(A/R) ÷ NS 18.97 20.24 19.10 12.15
Operating Cycle (Days) = Days of Inventory + Days of A/R 53.46 56.33 63.30 54.85
COGS as % of Sales = COGS ÷ NS 75% 73% 75% 73% 73%
Gross Profit Margin as % of Sales = GP ÷ NS 25% 27% 25% 27% 27%
Operating Expenses as % of Sales = OE ÷ NS 18% 18% 22% 18% 17%
COS as % of Sales = (COGS + OE) ÷ NS 93% 91% 97% 92% 90%
Operating Profit Margin as % of Sales = OP ÷ NS 7% 9% 3% 8% 10%
Net Profit Margin as % of Sales = NP ÷ NS 4% 13% 4% 7% 7%
Effective Tax Rate = Tax Expenses ÷ PBT 18% -61% 1% 21% 26%
Return on Assets = NP ÷ Avg(TA) 3% 10% 3% 9% 20%
Return on Equity = NP ÷ Avg(Equity) 3.00 8.40 2.23 5.26 4.96
EPS = (NP - Preferred Stock Dividends) ÷ Avg Common Stock 3.00 8.40 2.23 5.26 4.96
Price Earning Ratio = Stock Price/Share ÷ EPS 48.90 20.46 9.59 12.34 15.45
Asset Turnover Ratio = NS ÷ Avg(TA) 0.92 0.81 0.81 1.28 1.45
Payout Ratio = Cash Div declared on Common Stock ÷ NI 80.96 44.28 34.52 32.51 35.34
Du Pont Analysis
Return on equity = net profit margin * total asset turnover* Financial Leverage Multiplier
2008 2009 2010 2011
Return on Equity 0.914733 0.691384 0.458078 0.494369
Return on Assets 0.300606 0.220232 0.14226 0.165476
Leverage Ratios 3.042964 3.13934 3.220006 2.987566
Net profit margin 0.977296 0.965919 0.970953 0.971675
8. Trend Analysis
Horizontal Analysis
2011 2010 2009 2008 2007 2011 2010 2009 2008 2007
Current Assets 138.94 113.77 95.56 102.39 100.00 Net Sales 174.47 129.26 93.19 104.34 100.00
Inventories 155.60 117.38 89.16 96.84 100.00 COGS 178.85 129.31 95.10 104.17 100.00
Accounts
Receivable
332.77 305.80 198.83 144.56 100.00 Gross Profit 162.42 129.14 87.93 104.81 100.00
Long Term
Assets
273.29 257.03 228.31 163.46 100.00
Operating
Expenses
184.53 137.34 120.92 113.89 100.00
Property Plant &
Equipment
913.37 901.77 523.54 198.23 100.00
Income from
Operations
125.05 115.29 32.19 89.46 100.00
Gross Block 273.29 257.03 228.31 163.46 100.00
Other revenues
and gains
74.74 755.92 377.65 197.06 100.00
Less A/D 249.36 209.86 158.45 123.42 100.00
Other expenses
and losses
293.26 1232.46 134.80 74.51 100.00
Net Block 172.97 147.37 127.90 111.22 100.00
Earning before
exceptional item
115.74 136.28 58.46 99.05 100.00
Misc
Expenditure
345.69 288.67 196.98 138.80 100.00
Exceptional Item
Gain/Loss
0.00 0.00 0.00 0.00 0.00
Total Assets 285.01 264.61 195.96 135.41 100.00 EBIT 115.74 136.28 58.46 99.05 100.00
Current
Liabilities
220.93 236.11 147.27 144.84 100.00 Interest Expense 365.41 352.59 215.19 90.19 100.00
A/P 147.80 145.47 131.33 125.43 100.00 EBT 85.36 109.96 39.40 100.13 100.00
Long Term
Liabilities
373.69 378.12 292.57 151.30 100.00 Income tax 58.31 -261.58 1.89 83.00 100.00
Total Liabilities 281.21 292.15 204.60 147.39 100.00 Net Income 94.69 238.06 52.33 106.03 100.00
Common Stock 165.46 148.05 133.38 100.03 100.00 Net Sales 174.47 129.26 93.19 104.34 100.00
Retained
Earnings
299.27 219.84 183.47 115.04 100.00 COGS 178.85 129.31 95.10 104.17 100.00
Total SE 291.75 215.81 180.65 114.20 100.00 Gross Profit 162.42 129.14 87.93 104.81 100.00
Total Liabilities
& SE
285.01 264.61 195.96 135.41 100.00
Vertical Analysis
2011 2010 2009 2008 2007 2011 2010 2009 2008 2007
Current Assets 26.00 22.93 26.01 40.33 53.34 Net Sales 100.00 100.00 100.00 100.00 100.00
Long Term
Assets
41.75 44.40 34.81 19.07 13.03 COGS 75.20 73.38 74.86 73.24 73.36
Property Plant &
Equipment
32.25 32.67 39.18 40.60 33.63 Gross Profit 24.80 26.62 25.14 26.76 26.64
Total assets 100.00 100.00 100.00 100.00 100.00
Income from
Operations
7.10 8.83 3.42 8.49 9.91
Other revenues
and gains
0.38 5.21 3.61 1.68 0.89
Current
Liabilities
30.00 34.53 29.08 41.39 38.70
Other expenses
and losses
0.53 2.99 0.45 0.22 0.31
Long Term
Liabilities
33.07 36.04 37.66 28.18 25.22 Net Income 3.77 12.80 3.90 7.06 6.95
Total Liabilities 63.07 70.58 66.74 69.57 63.92
Retained
Earnings
35.75 28.29 31.88 28.93 34.05
Total SE 36.93 29.42 33.26 30.43 36.08
Total Liabilities
& SE
100.00 100.00 100.00 100.00 100.00
9. Comparative Analysis
Profitability Vs Sales Growth
Sale growth has increased progressively YOY for Tata Motors, except 2009, where we see a negative
growth (Only Mahindra & Mahindra has positive sales growth in 2009). Profit margin ratio is also
poorer than the competitors (except 2010)
Efficiency Vs Profitability
Inventory Turnover Ratio of Tata motors has increased to some extent over the years, however it has
always been more than that of Ashok Leyland and less than that of Mahindra & Mahindra. Profit
margin ratio is also poorer than the competitors (except 2010)
53%
20%
-22%
8%
35%
39%
-11%
4%
26%
42%
16% 14%
4%
13%
4%
7%6% 6%
3%
6%
11% 11%
19%
10%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
2011 2010 2009 2008
Profit Margin Ratio, Percent Sales Growth vs Time
Tata Sales growth
Ashok Sales Growth
Mahindra Sales Growth
Tata Profitability
Ashok Profitability
Mahindra Profitability
10.58 10.11
8.26 8.558.69
3.51 3.51
5.02
19.14
20.65
17.41
14.17
4%
13%
4%
7%
6% 6%
3%
6%
11% 11%
19%
10%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
0.00
5.00
10.00
15.00
20.00
25.00
2011 2010 2009 2008
Profit Margin Ratio, Inventory Turnover Ratio vs Time
Tata_ITO
AL_ITO
MnM_ITO
Tata_PMR
AL_PMR
MnM_PMR
10. Liquidity Vs Profitibility
Tata Motors has been less liquid compared to its competitors over the years. Profit margin ratio is also
poorer than the competitors (except 2010)
Dividend Payout Vs Capex
Dividend Payout for Tata Motors has increased YOY. However capital expenditure has been
significantly larger over the year for Ashok Layland
4%
13%
4%
7%
6% 6%
3%
6%
11% 11%
19%
10%
0.87
0.66
0.89
0.97
1.17
1.36 1.42
1.321.29
1.78
1.44
1.58
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
2011 2010 2009 2008
Current Ratio, Profit Margin Ratio vs Time
Tata_PMR
AL_PMR
MnM_PMR
Tata_CR
AL_CR
MnM_CR
239.11 233.04 402.91 441.13
3526.026
6947.233
7641.317
6209.04
123.5 96.7 92.97 72.9
81%
44%
35% 33%
42%
47%
70%
43%
10% 13% 11%
23%
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2011 2010 2009 2008
Payout Ratio, CapEx vs Time
Tata_CapEx
AL_CapEx
MnM_CapEx
Tata_POR
AL_POR
MnM_POR
11. Assessment of operating and financial performance and position of Tata Motors
Tata motors are a part of the cyclical automobile industry so it suffers from fluctuations in its ratios
but as compared to its competitors it has displayed poorer operational and financial performance.
Its Gross Profit margin is higher than the other two but profitability ratios such as EPS ,Profit margin
ratio and Operating Profit margin are poorer than the other two indicating that operating expenses are
proportionately higher cutting into it profit margins.
Financially it has been more reliant on debt financing than on equity but this is the norm in the
automotive sector though Mahindra and Mahindra is comparatively less reliant on debt and Ashok
Leyland is more or less equally dependent.
Tata Motors’ liquidity ratios are also poorer as compared to its competitors showing that its ability to
pay maturing obligations has been compromised relative to its competitors but being part of a huge
conglomerate its not as threatening as it might have been for an independent company.
The company’s financial statements indicate that its financial position is not very strong as there are
many negative indicators but its recent acquisitions are regarded as future growth drivers and may
help the company overcome operational inefficiencies through technological inputs they provide.
Assessment of operating and financial strength and weakness of Tata Motors
The cash flow from operations has fluctuated over the years peaking in 2009-10 but returning to a
low level in 2010-11 and operating profit margin has shown a similar trend indicating operational
efficiency management needs to improve. Operational efficiency has to improve to achieve ratios that
are consistent irrespective of sales as operational efficiency should ideally be independent of sales
volumes.
The firm has constantly increased its assets base particularly long term assets and PPE indicating
investment in expanding operations on a continual basis.
ROA and ROE have fluctuated and effectively declined for more years which are further issues that
need to be addressed. This implies that investments have not yielded proportionate results over the
years. Better returns would help them keep investors happy and attract more investment. For this the
operational efficiency issues need to be addressed urgently and streamlining of operations to ensure
consistent and better returns is a major issue.
Its assets turnover ratio is less than 1 and inventory turnover ratio has consistenly been higher than
Ashok Leyland but lower than Mahindra and Mahindra indicating that perhaps it needs better
inventory management to improve its operational efficiency. This becomes especially relevant
considering the financial challenges faced by the company.
One of the factors affecting their financial performance is major acquisitions of foreign car
manufacturers abroad that have required heavy investments. These would probably turn out to be
strengths in the long run as they are utilized in global expansion; and technological benefits and
additional segments of automotive industry they allow the company to foray into will aid the domestic
operations as well.
Free Cash flow has been consistently negative indicating growth related expenditures outweigh its
operational cash inflows. This needs to be addressed for better solvency.
12. The working capital has remained consistently negative for the last 4 years indicating the mismatch
between current assets and liabilities has not been rectified.
Ultimately there is a lot of scope for improving on the operational as well as financing front and
although the company is committed to growth and thus needs heavy investment but too
