An Equity Research Report on Tata Motors Limited as of Dec 2011

1. Large Cap Universe- An Equity Research Initiative by SaurabhAn Equity Research Initiative by SaurabhAn Equity Research Initiative by SaurabhAn Equity Research Initiative by Saurabh
Company in Focus:Company in Focus:Company in Focus:Company in Focus: Tata Motors
26,214Employees
7.30%
Long Term Growth
Rate
204.14Target Price
2.30%Dividend Yield
68.90%Free float
3,173Shares Out (mn)
507.7Market Cap (bn)
172.75CMP
137.65-274.4052 week range
Num Snapshot
As at 15-Dec-2011
Business Description
Tata Motors is India's largest automobile company, with
consolidated revenues of Rs. 1, 23, 133 crore ($ 27 billion) in
2010-11. Through subsidiaries and associate companies, Tata
Motors has operations in the UK, South Korea, Thailand, Spain
and South Africa. Among them is Jaguar Land Rover, the
business comprising the two iconic British brands. It also
distributes Fiat cars in India, and has an industrial joint venture
with Fiat in India. With over 6.5 million Tata vehicles plying in
India, Tata Motors is the country's market leader in commercial
vehicles and among the top three in passenger vehicles. It is
also the world's fourth largest truck manufacturer and the third
largest bus manufacturer. Tata cars, buses and trucks are being
marketed in several countries in Europe, Africa, the Middle East,
South Asia, South East Asia and South America. The company
was founded on September 1, 1945 and is headquartered in
Mumbai, India. (www.tatamotors.com)
Price Performance (%) 1 M 3M 1Y
Absolute -4.7 14.2 -34.7
Rel. to BSE Sensex 1.5 21.7 -19.0
JLR providing the much needed cushion
JLR surprises again. Volumes rose by 27% YOY, owing to new
product launches & luxury car market recovery in US & China.
Evoque has been received well by the consumers though XF2.2
failed to cheer up the sales volume of Jaguar in a similar way.
US luxury car segment has rebounded well in the last couple of
months though Europe still remains vulnerable. In China the
overall automobile market has remained weak but the luxury
segment has been immune to the slowdown so far and has
posted strong growth.
Domestic Circuit Update
Though demand has remained stagnant but December MoM
sales picked momentum on the back of higher discounts.
Discount ranges between Rs. 15,000 20,000. An exchange‐
bonus ranging between Rs. 20,000 to Rs. 40,000 and a couple of
freebies are being offered. Tata Motors has extended the

2. warranty period to two years from 18 months earlier from
Dec’11. Whatever scheme comes up, 25% of that cost is borne
by the dealer, the rest is borne by Tata Motors. In addition to
that the dealer may give Rs. 1,000 2,000 discount more of his‐
own. Dealer margin has been around 3%. In CVs it gained 20
bps market share while Ashok Leyland lost 210 bps. Tata Motors
is unlikely to hike prices in Jan’12. However, a leading Business
Channel had recently reported that some dealers are falsely
communicating to customers that the price hike will take place in
Jan’12 in order to pre pone buying and push up sales in Dec’11.‐
Post BS III compliance, they received complaints for 1109 and‐
407 on the emission norms front. The Company is holding a
meeting in Jan’12 to discuss these problems. In LCV space, the
demand for Tata Ace has been good however, post Diwali it is
witnessing a slight slowdown with the intense competition from
Mahindra Maxximo. But, the dealers maintain that though
Maximmo is picking up, M&M is not able to eat the share of Tata
Motors due to un availability of their‐ spare parts and poor after
sales service.
Market Share trends
Source: SIAM
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
M
S
ILH
yundai
Tata
M
otors
Ford
G
M
VW
H
ondaToyotaO
thers
Passenger Cars
Passenger Car category is expected to grow by 4-6% in
2011-12.
Commercial Vehicles
Tata Motors,
59%Ashok
Leyland,
10.30%
M&M, 18%
Others,
12.80%
The overall Indian CV segment is poised to grow by 13-
15% in 2011-12.
Peer Comparison
Field
Tata
Motors
Bajaj
Auto M&M
Hero
MotoCorp
Maruti
Suzuki
Revenue
Growth 33.09 38.86 28.06 22.13 24.40
EBITDA
Margin 13.66 20.37 20.53 13.51 9.45
Net Income
(in billion
INR) 92.74 34.55 30.80 19.28 23.82
1 Year EPS
Growth 218.90 116.66 18.59 -13.62 -9.23
P/E 5.91 13.50 12.96 19.17 11.71
Price/Book
Value 4.13 8.81 2.88 10.74 2.55
RoE 67.75 91.83 25.20 60.05 17.99
Dividend
Yield 2.30 2.48 1.51 5.67 0.78
EV/EBITDA 8.73 13.35 11.78 11.13 13.79
Beta 1.40 0.84 1.07 0.68 0.82
Wealth destroyer in short run
Rs 100 invested last year is worth
65.25
82.73
80.60
0.00 20.00 40.00 60.00 80.00 100.00
TataMotor s
BSE AutoIndex
BSE Sensex
But a promising value creator in the medium term
Rs 100 invested 3 years back is worth
545.84
339.84
161.40
0.00 200.00 400.00 600.00
Tata
Motors
BSE Auto
Index
BSE
Sensex

3. Volume Growth Status
Tata Motors, country’s largest auto maker, reported 35% jump
in its global vehicle sales in November, with its luxury Jaguar
Land Rover unit reporting a 27% rise in sales at 29,183 over the
same period. In November period, it sold 108,028 vehicles.
The auto major has witnessed an increase of 40.64% in its total
vehicle sales during November, 2011, at 76,823 units against
54,622 units in the same month last year. However, domestic
sales of passenger vehicles stood at 27,737 units in November,
up 80.81% from 15,340 units in the same month last year.
TTM Volatility on bourses
Courtesy: Bloomberg
Possible Upside Movement-Factors
• Land Rover volume run-rate has increased to a large extent
post launch of Evoque. Strong performance of Evoque in US,
European & Chinese market is expected to continue in 2012.
• Positive Currency movement for JLR- A rising USD
against GBP & EUR is in the favour for JLR. That’s because a
major portion of JLR’s revenue is denominated in USD while
a big chunk of its costs are denominated in GBP & EUR. That
said, Forex movement often acts like a see-saw, contra
movements in currencies can turn the table against JLR,
though it’s not expected in the near term.
• Top line in Indian markets to grow on the back of new
product launches in 2012 across several segments. Two new
bus models are expected in the next couple of months.
Existing Nano Upgrade & a new diesel variant has been
proposed for the next year. Many SUV buffs have been
eagerly waiting for the upcoming Auto Expo when the
company will unveil the new Safari model. Even in MHCV
category, a couple of products have been in the pipeline for
a long time. In recent years, this segment has turned out to
be a Cash cow for Tata Motors.
• Limited Insulation from Input corner- Aluminum &
Steel prices have corrected by 18% & 17% Year to date
respectively. Together both form a major portion of raw
material consumption in the manufacturing process.
• Improved brand image in the Passenger Car
segment- Tata Motors have come a long way since the
launch of their first Indica model. Their alliance with Fiat for
new Diesel technology has paid off well. Product
performance has improved significantly. Though they still
remain the preferred choice for Fleet owners (Cab industry)
but retail customers have also started showing interest in
their offerings especially post Indica Vista & Manza launch.
Both products have been received well in the market.
Key Concern/Risk
• Proposed Tax on Diesel Vehicles- A leading English daily
had recently reported that the Indian Govt. is considering an
additional excise tax on Diesel cars. If it really happens, it
could adversely impact Tata Motors sales across all
segments as historically Diesel powered models have been
it’s strength area.
• Increased competition in Passenger & Utility Vehicles
business- In the last 5-6 years, almost all Global Auto
majors have entered the Indian Small car & UV space with
various offerings as the Total pie has grown to a mammoth
size. As a result of this, Indian consumers have been
pampered with too many choices. This customer delight has
now become a nightmare for Automobile firms. The market
is very demanding, Product & Service expectations have
increased manifolds due to rise in competition. Adding value
to firm’s offerings without impacting costs is the new
challenge which is only going to get worse in the future.
These factors can impact future margins. Even its Nano bet
didn’t deliver on market expectations.
• Rise in Interest rates- In the last one year RBI has
increased key interest rates on more than five occasions.
High consumer interest rates impact revenues especially in
the CV space because a major portion of sales are routed via
Auto loans.
• High Debt- Since the acquisition of JLR, it’s debt has
remained quite high compared to its peers.
Debt to Equity Ratio
0.95
1.33
5.89
4.28
1.71
0
1
2
3
4
5
6
7
2007 2008 2009 2010 2011
Year
No.oftimes
Valuation
Over the last 6 years, Tata Motors has paid out only 20% of its
net profit as dividend to its shareholders. The balance of 80%, it
has invested back in its business, on which it has earned a very
high 25% average return every year. The company is currently
struggling with the problems of stagnant domestic demand,
increasing interest rates and high debt. Looking at its historical
performance and future prospects I expect Tata Motors to grow
its EPS by 16% CAGR in the next 5 years on the back of
economic revival, new product launches, diesel technology edge,
increasing per capita income and geographical diversification.

4. Price, Financials & Ratios History
2005 2006 2007 2008 2009 2010 2011 5Yr Avg
29.3% 37.9% -17.6% -77.9% 398.3% 64.8% -33.9% Price Change 81.1%
-13.1% -8.8% -64.7% -25.4% 317.3% 47.4% -11.1% +/- India SENSEX 53.1%
-27.7% 7.5% -17.0% -29.2% 199.4% 35.9% -25.1% +/- Industry 39.3%
0.0% 1.6% 2.0% 5.1% 1.6% 1.4% 2.3% Div Yield 2.4%
3/06 3/07 3/08 3/09 3/10 3/11 3/12E 5Yr CAGR
231.5 314.0 342.8 699.0 977.2 1,284.5 1,448.2 Sales 40.9%
24.1 30.1 28.1 10.3 70.9 166.9 178.6 EBITDA 47.2%
17.9 23.2 20.3 -14.8 32.0 120.4 122.4 EBIT 46.4%
17.3 21.7 21.7 -25.1 25.7 92.7 87.9 Net Inc 39.9%
-- -- -- -11.34 8.89 29.13 27.38 EPS (Dil) --
2.52 2.91 2.91 1.20 3.00 4.00 -- Divs PS 9.7%
-- -- -- 2.2 2.9 3.2 -- Shs Out (Dil) --
31.02 38.81 43.70 20.51 29.27 59.96 80.37 Bk PS 14.1%
13.9 11.5 38.3 41.2 87.4 109.5 -- Cash & ST Inv 51.2%
185.6 252.2 359.0 741.3 871.0 1,012.9 623.5 Assets 40.4%
28.6 39.5 8.5 -148.1 -113.7 -63.3 -- Wk Cap --
27.1 38.7 63.1 185.1 217.2 224.1 -- LT Debt 52.6%
-0.6 -11.6 48.0 -12.9 67.5 91.8 160.9 Net Op CF --
-12.6 -27.6 -52.8 -99.7 -84.8 -81.2 -121.7 Cap Ex 45.2%
-18.5 -45.0 -11.7 -119.2 -20.7 0.6 18.8 FCF --
3/06 3/07 3/08 3/09 3/10 3/11 3/12E 5Yr Avg
12.7% 13.8% 12.8% 11.8% 10.7% 19.1% -- Gross Margin 13.6%
10.4% 9.6% 8.2% 1.5% 7.3% 13.0% 12.3% EBITDA Margin 7.9%
7.7% 7.4% 5.9% -2.1% 3.3% 9.4% 8.5% EBIT Margin 4.8%
7.5% 6.9% 6.3% -3.6% 2.6% 7.2% 6.1% Net Margin 3.9%
10.2% 9.9% 7.1% -4.6% 3.2% 9.8% 14.1% ROA 5.1%
32.8% 31.3% 26.4% -35.8% 37.5% 67.3% 34.1% ROE 25.4%
1.4 1.4 1.1 1.3 1.2 1.4 2.3 Asset Turn 1.3
3.0 3.3 4.1 14.0 10.4 5.3 2.3 Assets/Equity 7.4
7.82 14.05 10.32 29.57 40.20 49.00 -- Sales/Emp 28.63
74.7 91.4 103.6 57.5 50.9 45.5 -- DSO 69.8
102.5 84.7 108.2 90.9 108.4 104.7 -- DPO 99.4
1.3 1.3 1.0 0.7 0.8 0.9 -- Current Ratio 0.9
1.0 1.0 0.8 0.4 0.5 0.6 -- Quick Ratio 0.7
35.5 48.6 57.1 86.8 80.7 63.1 -- TDebt%Cap 67.3
55.1 94.6 133.2 659.4 419.1 171.0 -- TDebt%TEQ 295.4
16-Dec-2011, © Saurabh 2011 (Saurabh Kumar| kaashyap.saurabh@gmail.com| +91-8374109195)
Disclaimer- Due diligence has been exercised in checking the authenticity of all figures mentioned in this report. But
that does not guarantee its accuracy or completeness. The recipient of this material should rely on his/her own
judgment and take prudent decision before acting on the above piece of information.