Tata motors analysis
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Tata Motors is the largest automobile and commercial vehicle manufacturer in India. It is part of the $70 billion Tata group and has a market worth of $22 billion. Tata Motors acquired Jaguar Land Rover in 2008. While it manufactures many passenger and commercial vehicles in India, it has faced financial challenges maintaining liquidity and profitability due to expansion plans and costs associated with acquiring Jaguar Land Rover. Compared to its main competitor Maruti Suzuki, Tata Motors has higher debt levels, lower current ratios, and longer inventory holding periods.
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Tata motors analysis
- 1. Tata Motors Financial Analysis
- 2. Brief Introduction Largest automobile and commercial vehicle manufacturer in India Part of USD 70 billion TATA group which consists of 98 companies Worth of Tata motors is 22 billion dollars Amongst fortune 500 companies Acquired Jaguar, Land Rover for 2.8 billion USD Subsidiaries are Jaguar Land rover, Daewoo Commercial Companies Manufactures passenger cars, utility vehicles, commercial vehicles and passenger buses Employees 3,57,000 worldwide Products include Nano, Safari, Manza, Indica and others
- 4. Current Ratio 1.80 1.70 1.70 1.60 1.40 1.40 1.20 1.20 1.20 1.20 1.02 1.00 0.80 0.80 Tata Motors 0.80 0.66 Maruti Suzuki 0.60 0.40 0.20 0.00 2006 2007 2008 2009 2010 •Current Ratio close to 2 is desirable for automotive Industry. Tata Motors has low current ratio because of its expansion plans (Jaguar Deal & others) which brought down its cash and bank balance and increased its outside liabilities. •Also, Current liabilities has increased due increase in sundry creditors and acceptances and liability towards premium on redemption of Non-Convertible Debentures created during 2009- 10 of Rs.1,745.79 crores.
- 5. Collection/Credit 140 130 125 120 101 100 84 80 80 Avg. Collection Period 60 Avg. Creditors Period 40 20 20 17 9 9 11 0 2006 2007 2008 2009 2010 •As collection period is much shorter than credit period, it helps to maintain cash for daily operations.
- 6. Inventory Turnover Ratio 35.00 30.46 30.47 30.00 25.00 22.93 21.27 20.00 Tata Motors 14.15 14.44 15.00 13.47 13.07 Maruti Suzuki 10.32 11.02 10.00 5.00 0.00 2006 2007 2008 2009 2010 •Average Inventory holding period for Tata Motors = 30 •Average Inventory holding period for Maruti Suzuki = 13
- 7. Debt- Equity Ratio 1.20 1.11 1.06 1.00 0.80 0.80 0.59 0.60 0.53 Tata Motors Maruti Suzuki 0.40 0.20 0.09 0.11 0.07 0.07 0.01 0.00 2006 2007 2008 2009 2010 •Debt-equity ratio of Tata Motors is very high as compared to Maruti Suzuki it means that a lot of debt is used by Tata Motors to finance its increased operations. Industry Average is 0.60
- 8. Operating Profit Margin % 18.00 16.00 15.29 14.88 14.12 14.00 12.74 11.74 12.00 10.68 10.53 9.70 10.00 9.18 Tata Motors 8.00 6.71 Maruti Suzuki 6.00 4.00 2.00 0.00 2006 2007 2008 2009 2010 •As per the Manufacturing industry standards, Operating profit of both the firms is competitive
- 9. Net Profit % 12.00 10.09 10.00 9.53 9.34 8.34 8.00 7.35 6.94 6.60 6.26 6.00 5.72 Tata Motors Maruti Suzuki 3.77 4.00 2.00 0.00 2006 2007 2008 2009 2010 •The trend shows that Tata's net profit is quite stable until it falls to 3.77% in 2009 Since Recession hits economy badly hence sales gets reduced and Input cost Increases.
- 10. Return on Equity % 30.00 27.74 27.96 25.98 25.00 22.79 21.81 20.56 21.10 20.00 14.96 15.00 Tata Motors 13.04 Maruti Suzuki 10.00 8.09 5.00 0.00 2006 2007 2008 2009 2010 •Large amount of Equity fund was also used in Jaguar-LandRover deal which has not yet started paying returns, because of this Equity ratio is low for Tata Motors
- 11. Dividend per Share 16.00 15.00 15.00 15.00 14.00 13.00 12.00 10.00 8.00 Tata Motors 6.00 6.00 Maruti Suzuki 6.00 5.00 4.50 4.00 3.50 3.50 2.00 0.00 2006 2007 2008 2009 2010 •Tata Motors and Maruti Suzuki both showed a positive trend in paying dividends till 2008 but scenario changed in 2009 as both the companies dividend per share fell. Tata Motors Dividend is much higher than that of Maruti Suzuki.
- 12. Return on Capital Employed 35.00 31.90 30.00 25.00 23.40 20.00 18.80 15.00 13.90 Return on Capital Employed 12.00 10.00 5.00 0.00 Tata Motors Maruti Suzuki Mahindra Ashoka Others Leyland
- 13. EPS to MPS Analysis 1800 1583 1600 1409 1400 1200 1011 1000 939 MPS Tata 880 MPS Maruti 780 800 720 EPS Tata 700 EPS Maruti 600 518 400 170 200 60 86 40 41 50 54 53 42 39 19 0 2006 2007 2008 2009 2010
- 14. Market Share by Volume 14.50 14.10 4.50 Tata Motors Maruti Suzuki Hyundai Motors 18.10 GM Others 48.80
- 15. Thank You
Editor's Notes
- The balance sheet tells investors how much money the company has, how much it owes, and what is left for the stockholders.
- Description:-A type of liquidity ratio-Measures the company’s ability to pay short-term obligationsCurrent Ratio=(CurrentAssets)/(CurrentLiabilities)Current Asset= cash + accounts receivable + inventory + marketable securities + prepaid expenses + other liquid assetsCurrent Liabilities= short term debt + accounts payable + accrued liabilities + other short term debtsThe ratio tells us whether a business is able to meet its short term obligations my measuring whether it has enough assets to cover its liabilities.A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt.A high current ratio means that management has large amount of cash on hand, they may be doing a poor job of investing it
- The approximate amount of time that it takes for a business to receive payments owed, in terms of receivables, from its customers and clients.Calculated as:Avg collection period = Days * AR/(Credit Sales)Where:Days = Total amount of days in periodAR = Average amount of accounts receivablesCredit Sales = Total amount of net credit sales during period--------------------------Credit Period:
- Debt Equity ratio indicates what proportion of equity and debt the company is using to finance its assets.Debt Equity Ratio=(Total Liabilities (Shortterm+Long term Debt))/(Shareholders Equity)
- Operating income, or operating profit as it is sometimes called, is the total pre-tax profitOperating Income ÷ Sales = Operating Marginerating profit margin ratio analysis measures a company’s operating efficiency and pricing efficiency with its successful cost controlling. The higher the ratio, the better a company is. A higher operating profit margin means that a company has lower fixed cost and a better gross margin or increasing sales faster than costs, which gives management more flexibility in determining prices
- Net Profit Ratio = (Net profit / Net sales) × 100 the firm shall not be able to achieve a satisfactory return on its investment.
- Return on Equity Capital = [(Net profit after tax − Preference dividend) / Equity share capital] × 100This ratio is more meaningful to the equity shareholders who are interested to know profits earned by the company and those profits which can be made available to pay dividends to them.
- Dividend per share is the dividend paid by company on it’s each. Calculated on face value of the share.Simplest way for company of communicate its financial status to investor.It’s the share of shareholder in company’s earning. Its amount is decided by company
- ROCEit can be used to show the overall profitability and efficiency of the business it is the amount earned by a company for every rupee invested in the business.Main reason for low ROCE is operational effeciencyROCE = EBIT/ Total Assets – Current LiabilitiesEBIT = Revenue - Operating ExpensesOperating Expenses is directly proportional to Long term goal.
- In last 1 year market value share rose from 170 to 780 which 4 times…currently trading at 930If someone would have invested in 1 share of Maruti and 1 share of Tata motors the he would suffered a loss of 170 and in case of tata would have gained 610 ruppess.MPS today of Tata = 930EPS today of Maruti= 1160EPS = Net Income – Dividends on preferred stock/average outstanding shares
- sold 6,33000 units across various segments