7528420 Fundamental Analysis of Tata Motors 10 September 2008
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Transcript of 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