Stock-O-ViTT, IIM JAMMU

ROUND 2

EQUITY ANALYSIS AND VALUATION REPORT

INDUSTRY - AUTOMOBILE

COMPANY - TATA MOTORS

TABLE OF CONTENTS:
● INDUSTRY ANALYSIS
● COMPANY ANALYSIS
● COMPARATIVE RATIO ANALYSIS
● COMPETITIVE ADVANTAGE
● FINANCIAL HEALTH SUMMARY
● VALUATION MODEL
● INVESTMENT RISKS
● FUTURE PROSPECTS
● RECOMMENDATION

Team - Optimise
Members:
Lakshanth K
Meit Baya
 INDUSTRY ANALYSIS

Overview:
● India’s automobile industry is the 4th largest
in the world. It is expected to be the 3rd
largest by mid 2022.
● The automobile sector accounts for 7.1% of
India’s GDP.
● India’s Commercial Vehicle Industry is the
7th largest in the world.
● The Automobile industry is expected to
grow to US $300 Billion by 2026.
● It has attracted US $30.51 Billion worth of foreign Direct
Investment between Apr 2003 and June 2021 which is
approximately 5.5% of the total FDI received by India.
● Automobile production has grown at a CAGR of 2.36%
between FY 2016-2020. The Domestic sales has grown at a
CAGR of 1.29%.
● The export of automobiles has also been growing at a
CAGR of 6.94%.

EV Market:
● Sales of EVs grew at 44% from 2017-21.
● Statistics say that 35% of buyers are willing to pay a premium of
more than a lakh for green mobility.
● The EV market is expected to be 50000 cr by 2025
● The demand for EVs has been growing continuously. Though Maruti
Suzuki does not expect the EV market to grow rapidly until 2025,
Tata Motors has rolled out a couple of EVs in the Indian market and
they have been very successful.
● By 2030 the opportunity created by EVs is estimated to be US $206
Billion
Government Initiatives:

● GST reduced on EVs from 12% to 5%.

● PLI schemes for Automobile and Auto components
worth $3.49 Billion have been rolled out. This will
bring investments of over US $5.74 Billion by 2022.
● Government has planned over US $3.5Billion
incentives over a period of 5 years until 2026.
● Under FAME - 2 US $117 Million has been spent.
85649 electric vehicles and 6265 Electric buses were
sanctioned to various cities and states.
● The Government of India expects the industry to
attract US $8-10 Billion in local and foreign investment by 2023.
● The NEMMP 2020 is the National Mission document providing the vision and the roadmap for
the faster adoption of xEVs (full range of hybrid and electric vehicles) and their manufacturing in
the country.
● Scrappage policy rolled out by the government is likely to have a positive impact on the
industry in general.
 COMPANY ANALYSIS

Tata Motors Ltd. is a part of the Tata Group which is

headquartered in Mumbai, India. It is into production of
passenger cars, vans, buses, military vehicles and construction
equipment. Jaguar Land Rover and Daewoo come under its
subsidiaries. It also has joint ventures with Hitachi and Fiat
Chrysler. It has a market cap of 1,62,624 cr.

Overview:
Price - 490.95 Mkt Cap - 162624 cr Face Value - 2 Sector PE - 55.61

Book Value - 170.81 P/B - 2.87 Beta - 1.77 1 Year Return -

151.25%

Qualitative Analysis:

MANAGEMENT
● N Chandrasekaram was appointed as the chairman of the Tata
Group in 2017. The company has witnessed substantial changes
and growth post this incident. He has handled some important
roles such as COO and CEO of TCS. He was also the chairman
of Tata Motors and Tata Global Beverages.
MARKET SHARE
● Tata Motors currently holds 13.4% market share which has more
than tripled from 4.02% in Aug’20. Tata Motors currently has 4 EVs in the market. The
EV sales have grown 272% from 2087 units sold in 2020 to
7756 units in 2021. In Dec’21 the sales were 2255 units which
is 439% YoY growth from Dec’20 sales of 418 units. Currently
Tata Motors is leading in the passenger car EV segment in
India.
● It has also backed an order from Maharashtra Govt. for 340
electric buses and other orders total it to 500 as a part of the
FAME scheme. Many government schemes and policies like
 emission control, PLI scheme, etc are key in driving up demand for electric vehicles.
● Tata Motors has a massive part of its income coming from
commercial vehicles and they have YoY growth of 150%
as of June with 22100 units sold.
● In the commercial vehicle segment it has the largest
market share of 42%. 62% in medium and heavy
commercial vehicles and 52.3% in Intermediate Light
commercial vehicles.
PROMOTERS, INSTITUTIONS AND PLEDGED SHARES
● Promoters have increased their share from 42.39% to
46.41 % in a period of 1 year. They have also released their share thus decreasing it from
3.95% to 1.82%. The FIIs have increased their stake in real terms considering the
acquisition of stake by promoters.
● It is collaborating with MG motors and Tata power on EV development. This will be a
huge advantage for it as Tata Power has currently set up the most number of EV charging
stations.
● It has an efficient Cash Conversion Cycle of -35.22 days.
● It has also manufactured defense services since the 1940s.
DEFENSE SUPPLY
● It has received orders of supplying Light Armored Troop Carriers to CRPF, Mine
Protected Vehicle, Range of Combax Support vehicles for Low-level Quick Reaction
missile System and also an order of 715 units of Xenon GS800 for US Army in
Afghanistan.

Timeline:
ESG:

● Supported 28000 underprivileged children in higher

education.
● 21,574 engines reused/recycled and >80% recyclability
and >85% recoverability rates for PV models. It also has
enabled 100% recycled bumpers.
● Fresh water offset improved by 10.7% and 20.0 % of
total power sourced from RE.
● Committed to Renewable Energy RE100 by 2030, from
20% in 2021.
● On track to plant 1mn trees by Dec-21
● Consistent spend on CSR beyond regulations (200 mn.)
● Frontrunner in India on GNCAP safety standards
● Tata UniEVerse - a Tata Group consortium committed to
address the e-mobility ecosystem.
 COMPARATIVE RATIO ANALYSIS OF TATA MOTORS:
1) LIQUIDITY RATIOS: Ratios used to ascertain whether a company is in a position to meet its
short term obligations.

✦ CURRENT RATIO (Current assets / current liab)

COMPANY 2018 2019 2020 2021

TATA MOTORS 0.95 0.85 0.85 0.93

MARUTI SUZUKI 0.51 0.87 0.75 1.15

INFERENCE: Tata Motor’s Current ratio has decreased over the past 4 years mainly because of an increase in short term
borrowings, other short term liabilities and rise in short term provisions from 2018-21. This may be a cause of concern as
the company may not be able to meet its short term obligations with its current assets.

2) RETURN RATIOS: Subset of profitability ratio, which measures the ability of a firm to generate
profits from the employed equity, assets and other underlying metrics.

✦ RETURN ON EQUITY % (Net Income / Shareholder equity)

COMPANY 2018 2019 2020 2021

TATA MOTORS 9.41 -47.9 -19.13 -24.3

M&M 20.42 13.2 0.31 4.35

INFERENCE: Tata Motor has produced a negative ROE over the past 3 years due to consistent losses in a row. One
primary reason is due to the poor performance of JLR, which contributes to more than 80% of Tata Motors consolidated
net profit. However, ROE has improved over the past 2 years (though still negative) which is a good sign, considering
that M&M ROE has been decreasing comparatively.

✦ RETURN ON CAPITAL EMPLOYED % (EBIT / Capital Employed)

COMPANY 2018 2019 2020 2021

TATA MOTORS 7.36 2.49 -0.25 6.14

M&M 12.01 11.75 9.60 9.85

INFERENCE: ROCE of Tata Motors had been on a decline from 2018 to 2020 from 7.36% to -0.25%. This is a sign of
worry as the Automobile industry is a capital intensive industry and a falling ROCE might indicate deterioration of
competitive advantage due to low efficiency in utilising capital to generate returns. However we have seen a sharp rise in
ROCE compared to 2020.

3) PROFITABILITY RATIOS: These ratios are financial metrics that are used to analyse the
ability of the company to generate Earnings relative to Revenues, Assets and other metrics.

✦ EBIT and NET PROFIT MARGIN % YoY

TATA MOTORS 2018 2019 2020 2021

EBIT MARGIN 4.70 1.33 -0.17 4.55

NET PROFIT MARGIN 1.89 -0.50 -3.36 1.24

INFERENCE: Net profit margin had been decreasing from 2018-2020, which was a result of semiconductor shortage
(which led to increased COGS) and the JLR crisis. However, both EBIT margin & Net Profit margin have improved
drastically over the past year mainly due to increase in sales and decrease in ‘other expenses’ from 59,000cr to 39,000cr.

4) SOLVENCY RATIOS: These are ratios that are calculated for the purpose of analysing the
position of a company from a long term solvency point of view These ratios measure the firm’s
ability to satisfy its long-term obligations.

✦ DEBT TO EQUITY RATIO (Total Debt / Shareholder Equity)

COMPANY 2018 2019 2020 2021

TATA MOTORS 0.82 1.51 1.58 2.08

M&M 1.23 1.35 1.56 1.43

INFERENCE: Tata Motor’s D/E ratio is 2.08 i.e, the company carries 2 rupees of debt for every one rupee of equity.
D/E has been increasing since 2018-21, which is a major sign of concern considering the company’s profitability has been
negative. However, the company has huge plans to achieve net debt free status by 2025.
 COMPETITIVE ADVANTAGES OF TATA MOTORS

1) DOMINANT MARKET SHARE IN THE COMMERCIAL VEHICLE SEGMENT IN

INDIA: Tata Motors dominates the Commercial Vehicle
Segment in India with a commanding market share of 42.3%
of all commercial vehicles manufactured. Tata Motors has a
massive part of its income coming from commercial vehicles and
They have YoY growth of 150% as of June with 22100 units sold.
Having a presence in over 46 countries around the globe,
Tata Motors is without a doubt among the top 10 CV makers
in the world today.

2) INNOVATION THROUGH RESEARCH & DEVELOPMENT:

The foundation of Tata Motor’s growth over the last 75 years has been its ability to understand
customer’s needs and translating it into cutting edge technology. Their products have come all the
way from Tata Indica to the new generation cars like Harrier, Nexon, Tiago and Altroz.
The company has also produced public transportation vehicles which are powered by alternate
fuel & are built for smart cities. The company boasts of state-of-the-art R&D centres and
design studios are located at Pune, Jamshedpur, Italy and the UK. Intensive R&D has led
to development of cars like Nexon with award winning Engine dynamics and safety.

3) RISING PV MARKET SHARE & STRONG COMMAND ON THE EV SEGMENT:

The Indian EV market is expected to grow at a staggering rate of
40% CAGR over the next 5 years. Tata Motors has a dominant
position, with a market share of 75% of the Indian EV market.
Tata Motors currently has 4 EVs in the market. The EV sales have
grown 234% YoY from 306 units sold in Aug 2020 to 1022 units
in Aug 2021.Currently Tata Motors are leading in the passenger
car EV segment in India. In 2017, Tata was selected as a winner
by the government-owned Energy Efficiency Services Limited
(EESL) to sell 10,000 EVs to the government. Company recorded
Record sales of 2255 EV units in Dec 2021 which shows that Tata Motors has promising potential
of capturing the EV wave in the next 5 years, which sets it apart from its competitors in the PV
segment.

4) QUALITY MANAGEMENT:
Tata Motors' board of directors is made up of extremely successful individuals with diverse
backgrounds. Mr. O P Bhatt, a non executive and individual director, has previously served as the
chairman of the State Bank Group, which indicates his competence and experience in the
financial sector. Mr. Mitsuhiko Yamashita has more than 40 years of experience in the automobile
business. He has worked at Nissan and Mitsubishi and is a member of the Ministry of Foreign
Affairs' Science and Technology Advisory Panel.
 5) INTERNATIONAL PRESENCE:
Since 1961, TAMO has grown their global reach by exporting. The firm dominates the hatchback
and sedan segments, as well as SUVs and MUVs, in passenger vehicles. Tata Motors offers a
diverse range of commercial vehicles that are tailored to local needs and fulfil the highest quality,
safety, environmental, and user comfort criteria. Tata Motors has a global network of over 8,800
touch points and is present in over 125 countries.

FINANCIAL STATEMENT ANALYSIS (OBSERVATIONS)

P&L ACCOUNT BALANCE SHEET CASH FLOW STATEMENT

✦ Operating income during the ✦ The company's current liabilities ✦ TATA MOTORS's cash flow from
year fell 4.3% on a year-on-year during FY21 stood at Rs 1,577 billion operating activities (CFO) during
(YoY) basis. as compared to Rs 1,405 billion in FY21 stood at Rs 290 billion, an
FY20, thereby witnessing an increase of improvement of 8.9% on a YoY
12.3%. basis.

✦ The company's operating profit ✦ Long-term debt stood at Rs 931 ✦ Cash flow from investing
increased by 15.5% YoY during billion as compared to Rs 833 billion activities (CFI) during FY21 stood at
the fiscal. during FY20, a growth of 11.8%. Rs -261 billion on a YoY basis.

✦ Operating profit margins ✦ Current assets rose 23% and stood at ✦ Cash flow from financial activities
witnessed a fall and down at 6.8% Rs 1,469 billion, while fixed assets fell (CFF) during FY21 stood at Rs 99
in FY21 as against 5.7% in FY20. 3% and stood at Rs 1,917 billion in billion, an improvement of 192% on
FY21. a YoY basis.

✦ Depreciation charges increased ✦ Overall, the total assets and liabilities ✦ Overall, net cash flows for the
by 9.9% and finance costs for FY21 stood at Rs 3,386 billion as company during FY21 stood at Rs
increased by 11.8% YoY, against Rs 3,167 billion during FY20, 132 billion from the Rs -31 billion
respectively. thereby witnessing a growth of 7%. net cash flows seen during FY20.

✦ Other income grew by 24.2%

YoY & Net profit for the year
grew by 18.6% YoY.

✦ Net profit margins during the

year declined from 4.2% in FY20
to 5.1% in FY21.
 VALUATION MODELS & SUMMARY

DCF MODEL VALUATION EXCEL SHEET & SUMMARY

The DCF model takes into account the historical data Click on the link below for valuation report
from FY 2017- 2021 & forecasted future performance
for FY 22- 27. DCF Model
The model comprises of:
1) FINANCIAL STATEMENTS
Share price - 484
2) INCOME STATEMENT FORECASTS Intrinsic Value - 292
3) WORKING SCHEDULE Premium - 65%
4) CASH FLOW FORECASTS
5) BETA, Rf, EQUITY RISK PREMIUM
6) COST OF EQUITY, COST OF DEBT &
WACC COMPUTATION
7) DCF MODEL & INTRINSIC VALUE
8) SUMMARY

RELATIVE VALUATION:

PARTICULARS P/E RATIO P/BV PRICE/SALES DIV YIELD

INDUSTRY 396 3.97 - -
TATA MOTORS -34.3 3.64 0.60 0.00%
MARUTI SUZUKI 55.95 4.49 2.74 0.58%
M&M 24.28 2.42 1.25 1.04%
ASHOK LEYLAND -219 5.18 1.63 0.46%

TATA MOTORS is relatively undervalued in terms of its Price to Book value which is below the industry
average and below its core competitors. The company prefers not to pay any dividends.
Price to Sales is relatively lower than its competitors which means investors are paying less for each unit
of sales of Tata Motors compared to its competitors.
 INVESTMENT RISKS

● Tata Motors has reported a mediocre sales increase of

7.06 percent in the most recent quarter, with sales of Rs
10,996.02 crore. The inventory turnover ratio, which is
11.22 times for Tata Motors, is used to determine whether
the company's inventory is being sold and the sales image
is accurate.
● Tata Motors has a bad return on equity (ROE) of -13.11
percent. Because auto firms deal with substantial equity
investments, the return on investment (ROI) is an
important financial metric.
● The dividend yield is low at 0 %.
● It is overvalued based on its PB Ratio (4.2x) compared
to the IN Auto industry average (4x).
● It is unprofitable, and losses have increased over the past
5 years at a rate of 45.6% per year.
● The short term assets (₹1,266.4B) do not cover its short
term liabilities (₹1,311.9B).
● It’s management team is not considered experienced
( 1.8 years average tenure), which suggests a new team.

INDUSTRY LEVEL RISKS

● The number of automobiles produced, sold and exported
have decreased over the past few years and is expected
to decrease.
● Tariffs on aluminum and steel have already added $240
to the cost of producing a new vehicle. As a result, car
prices are beginning to rise and exports are declining.
● Ride-sharing apps like Uber and Lyft and peer-to-peer car rental companies such as Turo
are expected to change the face of car ownership. Shared travel may substitute individual
car ownership and rising cost of car ownership is fueling this.
 FUTURE PROSPECTS

Industry Specific Prospects

● The scrappage policy and the regular updation of the Bharat Stage Emission Standards
will affect the automobile industry in a positive way.
● Rise in middle class income and young population will result in strong growth
● The FDI into the automobile sector is significant and is increasing constantly over the
past few years.
● The industry is expected to attract US$8-10 Billion worth of investments.
● Automotive Mission plan 2016-26 is a mutual initiation by the government of india and
indian automotive industry to lay down the road map for development of the industry.

Company and EV Specific Prospects

● The EV chargers installation drive is going on at
its full pace. Tata Power has set up 1800 stations
across the country. It is expected to grow at 40%
CAGR for the next 5 to 6 years.
● The government is looking for procurement of
5000 electric buses. This is a huge opportunity for
Tata Motors as it has already backed an order of
500 electric buses. It has also backed an order of
6413 vehicles from Andhra Pradesh State Civil Supplies Corporation.
● The tie up with Tata Power will enable it to develop EV charging solutions and at the
same time upgrade its technology.
● Since Tata Motors has already launched 4 EVs and has a dominant market share it will
become easier for it to now focus on innovation, infrastructure and product development.
It can work on its cost reduction strategies and increase its market share.
● Risk - Upfront cost of batteries make EVs expensive.
● Opportunity - The running cost is minimized. The risk of the upfront cost is converted
into an opportunity when EVs are used as public transport. This in the long term will save
the fuel cost thus making it cheaper than conventional vehicles.
 RECOMMENDATION
● The company’s past financial condition is not the best in the
industry. Rather, it needs a lot of improvement and a long
period of time for it to become profitable. The ROE, ROCE
and other ratios are negative. But it can be said that in recent
times, there has been a shift from the negative side to the
positive side.
● After N Chandrasekaran was appointed as the chairman of
the whole tata group and tata motors in 2017, there were
some significant changes made in the top-level management
of the company. People from varied backgrounds and with good experience were
welcomed on board. The change can even be visible on the financial side.
● It is evident that the techniques used by him are effective and
the company’s market share has increased from 4.02% in
Aug’2020 to 13.04% in Dec’21. It is also the vision of the
company to make itself debt free FY24.
● Its presence in the EV market is eminent. It has the largest
market share and is not only creating products but is also
very successfully creating demand for the product. Its
partnership with Tata Power has set itself a step higher than
rest of the companies in the market.
● Tata Motors makes strong cars and this is also reflected in the Global NCAP ratings.
People are now shifting their focus to strong built quality and are less worried about the
extra money spent.
● According to our analysis we recommend buying Tata Motors. It should be a long term
investment till 2027. The EV market is expected to witness a major breakthrough in the
year 2025. Money can be invested in lump sum or in a SIP form. This recommendation is
on the basis of improving financial performance, increasing market share and better
management. The vision of Tata Motors and the Tata group in itself speaks a lot. This
accompanied with Mr. N Chandrasekaran’s guidance and knowledge Tata Motors should
perform even better in the coming years.

MEAN (INR) 535.00

HIGH 661.00

LOW 315.00

No. OF ANALYSTS 29
REFERENCES AND CITATIONS:

➤ 76th Integrated annual report 2020-21, Tata Motors. Retrieved from

https://www.tatamotors.com/wp-content/uploads/2021/06/28075755/annual-report-2020-21.
pdf
➤ Moneycontrol financials. Retrieved from
Moneycontrol.com - Company Search, quotes, technical, intraday, charts, volumes,
historical stock price, messages, news, queries, IPO, Ipo listing, New Ipo, upcoming
issues,listed issues,IPO FAQs,Draft Offer,Basis of Allotment,Prospectus,draft
prospects,sebi,bse,nse,listing,promoter
➤ SimplyWallstreet financials. Retrieved from
Tata Motors (BSE:500570) - Share price, News & Analysis - Simply Wall St
➤ Youtube, Groww. Retrieved from
Tata Motors share analysis | Tata Motors fundamental analysis - YouTube
➤CA Rachna Ranade, Retrieved from
https://youtu.be/qvalLu7q84oFundamental Analysis Of Tata Motors By CA Rachana
Phadke Ranade | 200K Subscriber Special - YouTube

Thank you,
Team Optimise