7528420 fundamental analysis of tata motors 10 september 2008

7/27/2019 7528420 Fundamental Analysis of Tata Motors 10 September 2008

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Equity Valuation of

TATA Motors


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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


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TATA Motors Ltd

Founded: 1945

Founder: JRD Tata

Headquarters :Mumbai,

India

Key people: Ratan Tata,

Chairman

Parent: Tata GroupSubsidiaries: Jaguar Cars

Land Rover

Products: Automobiles

and Engines

Revenue :USD 9.07

billion (2006)Net income:USD

$474.0 million (2006)

Tata DaewooWebsite:http://www.tatamotors.

com/
http://en.wikipedia.org/wiki/Entrepreneurhttp://en.wikipedia.org/wiki/JRD_Tatahttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Ratan_Tatahttp://en.wikipedia.org/wiki/Holding_companyhttp://en.wikipedia.org/wiki/Tata_Grouphttp://en.wikipedia.org/wiki/Subsidiaryhttp://en.wikipedia.org/wiki/Jaguar_Carshttp://en.wikipedia.org/wiki/Land_Roverhttp://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Automobileshttp://en.wikipedia.org/wiki/Engineshttp://en.wikipedia.org/wiki/Revenuehttp://en.wikipedia.org/wiki/USDhttp://en.wikipedia.org/wiki/Net_incomehttp://en.wikipedia.org/wiki/USDhttp://en.wikipedia.org/wiki/Tata_Daewoo_Commercial_Vehiclehttp://en.wikipedia.org/wiki/Websitehttp://www.tatamotors.com/http://www.tatamotors.com/http://www.tatamotors.com/http://www.tatamotors.com/http://en.wikipedia.org/wiki/Websitehttp://en.wikipedia.org/wiki/Tata_Daewoo_Commercial_Vehiclehttp://en.wikipedia.org/wiki/USDhttp://en.wikipedia.org/wiki/Net_incomehttp://en.wikipedia.org/wiki/USDhttp://en.wikipedia.org/wiki/Revenuehttp://en.wikipedia.org/wiki/Engineshttp://en.wikipedia.org/wiki/Automobileshttp://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Land_Roverhttp://en.wikipedia.org/wiki/Jaguar_Carshttp://en.wikipedia.org/wiki/Subsidiaryhttp://en.wikipedia.org/wiki/Tata_Grouphttp://en.wikipedia.org/wiki/Holding_companyhttp://en.wikipedia.org/wiki/Ratan_Tatahttp://en.wikipedia.org/wiki/Ratan_Tatahttp://en.wikipedia.org/wiki/Ratan_Tatahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/JRD_Tatahttp://en.wikipedia.org/wiki/Entrepreneur


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Tata Motors Limited is India's largest automobile company, withrevenues 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 theworld's second largest medium and heavy bus manufacturer.

Annual turnover of over Rs 108 billion.

The company has manufacturing plants at Jamshedpur, Pune and

Lucknow, Bangalore, Chennai, Noida, Uttaranchal & Singur, & have

many more manufacturing & R&D units abroad.

TATA Motors At-a-Glance


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Global Automobile Industry


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Asian Automobile market

Growth rate


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Growth potential at Global Level

India is on every majorglobal automobile player's

roadmap.

See why?

4th largest commercial

vehicle market in the

world.

11th largest passenger carmarket in the world.

expected to become the

7th largest by 2016.


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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 2.1million 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 40% by

2020

Middle class expanding by 30 - 40 million every year


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Stunning Growth Rates! India Passenger car sales grew by

10.84% and crossed the 1 millionmark in 2006-07 and record salesof 1,076,408 vehicles.

Utility vehicles sales grew byalmost 12.2% in April-May 2007and this segment is expected togrow at 20% by 2010.

Multi purpose vehicles sales grewby almost 21.93% in April-May2007 compared to the same

period last year.


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Expected Growth by 2015-16

Potential Vehicle sales in India in 2015 - 06 ( in mn)

2.65

0.64

27.8

0.87

0 10 20 30

2015-16

Cars CVs Two wheelers Three Wheelers

Expected to grow at 13% p.a over the next decade to reach

around USD 120 - 159 bn by 2016.


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Exports Potential

to become the Global Outsourcing Hub

Export of auto components

(USD million )

456625 578

760

1,800

1020

1400

FY00 FY01 FY02 FY03 FY04 FY05 FY06

25%

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


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Allows automatic approval for foreign equity

investment upto 100% in the automotive sector.

Weighted tax deduction of upto 15% for in-house

research and R & D activities.

Government Regulations & Growth


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Key players of Automobile sector Commercial vehicles

TATA Motors, Ashok Leyland, Swaraj

Mazda, Mahindra & Mahindra ,Force

motors, Eicher Motors

Passenger vehicle

TATA Motors, Maruti Udyog, Honda

Motors, Toyata, Skoda, Mahindra &

Mahindra, GM, Ford, Hindustan Motors.


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TATAs Financials Rs in mn

Particulars Mar ' 08 Mar ' 07 Mar ' 06Net Sales 35,413 32,067 206022

% age growth 10.4 35.8 18.27%

Net profit 2,127 2,127 15288.8

%age growth 3.4 21.5 23.6%

B/S as on.. 261182.60 191640.50 163220.50

EPS (Rs.) 52.63 49.65 39.94

CFPS (Rs.) 69.55 64.87 53.54

Book Value (Rs.) 202.54 177.33 143.58

DPS (Rs.) 15.00 15.00 13.01


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TATAs 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


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Projects 2008 & onwards

Compressed Air Car

Tata Nano

Low cost low carbon

vehicle

Land rover & Jaguar

Electric vehicles


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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 Ltds 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.


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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


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Expected Growth Rate g

On the basis of Global, domestic & companies pastgrowth 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) FY2007 FY2008 FY2009E FY2010E

Net Sales 32,067 35,413 38,366 42,202

% chg 35.8 10.4 8.3 10.0

Net Profit 2,127 2,053 1,921 2,116

% chg 21.5 3.4 6.5 10.2

EPS (Rs) 38.3 40.0 34.3 44.9


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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%


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Future Cash flows

Particulars 2008 (FCFE) 2009 (FCFE)@6.55 2010 (FCFE)@10.2%

Cash flow per share 69.55 (given) 74.11 81.67

Value at terminal year (V2) =81.67/(.164-0.066)

=81.67/0.098=833.37

Present value =74.11/(1+0.066)

=69.52

=833.37/(1+0.164)^2

=617.3

Intrinsic value =69.52+617.3=686.82


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Conclusion

Current market price Rs. 500.15(NSE) & 500(BSE) Intrinsic value Rs. 686.82

Undervalued.

Buy Tatas 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 cash outflow was

much more than inflows).


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Thank You

7528420 fundamental analysis of tata motors 10 september 2008

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