Strategic Analysis Of TATA Motors with special emphasis on Inorganic Growth Strategy

Sibasis Mohapatra UM15111

INDUSTRY ANALYSIS

Industry :- Automobile (Passenger Vehicles & Commercial Vehicles)

Size Of Industry:- Global – 900 billion dollars (2014-2015 data) India- 150 billion dollars (2014-2015 data) which is 7.5 % of India’s GDP in 2014-2015

Stage in Growth Cycle – In transition towards maturity stageKey Growth drivers Rationale Vehicle penetration  Economic segment 

Vehicle penetration is still low. Only 18/1000 people own a 4 wheeler vehicle in India. But, with the changing economic scenario, the numbers have a great potential for improvement.Indian population is likely to move up the income curve. There has been a mass exodus of population from lower middle class group to upper middle class. Thus, implying that buying power has increased.

Critical Success Factor identified RationaleCSF 1: operational efficiency Given the highly competitive landscape of the industry, operational efficiency is key

for this industry. Efficient operation translates into competitive advantage in the market, as can be seen from the Japanese auto giant, Toyota.

CSF 2 :Constant innovation The consumer preference changes rapidly in this industry. Therefore, it’s imperative for the company to constantly reinvent itself. Product development thus, is of prime importance and models need to be renewed regularly.

CSF 3: Strategic Alliances, Flexibility, M&As

In the emerging market, companies need to adapt to localization and flexibility to gain market share.

CSF 4: Distribution network As automobiles are not sold directly to customers, auto manufacturers rely on franchised dealerships to provide local showrooms. These dealers must be knowledgeable and reputable to sell cars, which is essential for the automaker.

MARKET ANALYSIS BASED ON CSF

Contribution<1.5 low<=2 Medium>2 High

41%

14%

12%

15%Market share % ( No. of units sold)

Maruti suzuki HyundaiM&M TATA Motors

32%

27%

23%

18%

Market Share % ( Luxury)

Audi BMW Mercedez JLR

    Industry Average of Top 5 Firms or players serving 75-80% of the market Market Leader

Category Indicator 2011-12 2012-13 2013-14 2014-15 (till Q3) 2011-12 2012-13 2013-14 2014-15

(till Q3)

Solvency Ratios

Debt-to-assets ratio

0.183333 0.163333 0.166667 0.156667 0.2 0.2 0.21 0.23

Debt-to-equity ratio

0.973333 0.916667 0.733333 0.84 1.55 1.53 0.99 1.36

Interest coverage

ratio45.45667 71.28 81.89333 95.45333 1.99 1.58 1.39 5.32

Profitability Ratios

Gross profit

margin33.93667 35.50333 35.18333 36.19333 34.41 36.55 38.3 39.23

Operating profit margin

7.86 7.35 7.406667 9.183333 4.67 3.41 3.15 9.82

Net profit

margin7.403333 6.52 6.736667 6.086667 6.86 4.68 5.58 5.31

Return on assets

(ROA)11.89667 10.65333 10.63 10.66 8.8 5.48 6.42 6.1

Return on equity

(ROE)40.73 29.99 27.66 24.93 40.54 24.46 25.09 23.74

KEY TRENDS AND POLICIES IN INDUSTRYIndian luxury car segment is growing at a CAGR of 21% and SUV segment at 18%

India 12th largest in terms of HNI population which is growing at CAGR 20.2%

Gross turnover of industry rising at 6% CAGR

Growth trend in various segments

Government initiative to promote use of hybrid fuel100% FDI via automatic route and reduction on excise duty from 12 to 8% under “Make in India”Export volume rising at 17% CAGRUnder Union Budget 2015-16, the government has announced to provide credit of USD14100 tofarmers to boosts the tractor segment

The firm should be aware of governmental rules and regulation governing the production of cars, such as fuel efficiency , vehicle emissions, safety and standard issues .

Economic factor, influence the industry directly. The fluctuations in inflation, and growth directly affect the purchasing power and thus, the industry.

Automobile industry are a major contribution to pollution, which lead to respiratory and skin related diseases . Apart from this, traffic jams and road blocks are also major effects.

The automobile industry constantly looks for technological advancements. Cars manufactures are starting to introduce Alternative Energy Vehicles, which are using electricity only (rechargeable batteries), fuel cell, hydrogen, solar or hybrid.

Environment pollution, is one of challenging issues threatening the world, car manufactures should pay attention in it issues, by transforming their technology into alternative energy vehicles, reduce emissions

The firm should comply with all laws and regulation with its operations, such as gas emission laws, safety and standard issues, vehicles regulations, compatibility spares manufactures

PESTEL ANALYSIS

TIMELINE OF TATA MOTORS

CORE COMPETENCIES

MARKET EXPANSION

TATA MOTORS LIMITED JAGUAR LAND ROVER

43.2592592592

593

27.4567901234568

18.4691358024691

4.83950617283951

2.666666666666672.271604938271610.88888888888888

90.14814814814814

8

Luxury Goods

Luxury Cars Personal Luxury goodsHotels FoodPrivate Jets FurnitureYachts Cruises

SECTOR PERFOMANCE IN NICHE MARKET SEGMENT

STRENGTHS TO COMPLEMENT THE OTHERS OPERATIONS

JLR’s MAJOR DOMINANCE

TML MANAGEMENTS STRONG EXPERIENCE

LOW

MEDIUM

HIGH

DISTRIBUTION CHANNEL IN EMERGING ECONOMIES

HIGH

JLRAUDIBMW

TMLMaruti suzuki

LOW

MEDIUM

HIGH

DISTRIBUTION CHANNEL IN EMERGING ECONOMIES

HIGH

Maruti suzuki

TML + JLR

AUDIBMW

PRICE

STRATEGIC GROUP MAPPING

LOW

MEDIUM

HIGH

MARKET SHARE IN DEVELOPED ECONOMIESHIGH

JLRAUDIBMW

TMLMaruti suzuki

LOW

MEDIUM

HIGH

MARKET SHARE IN DEVELOPED ECONOMIESHIGH

TML + JLR

AUDIBMW

PRICE

MarutiSuzuki

Country of Investment

Category of Investment

Industry Reward to Risk Ratio (A)

Country Reward to Risk Ratio (B)

Risk Adjusted Rewards ( 0.65A + 0.35B)

Product Market Investment Strategy

Investment Rationale

United Kingdom

Luxury Autos 1.03 1.2 1.09

Score-69.45

Overall Ranking-2

Acquisition New market creationProduct diversification into premium segmentHeavy addition to top line

PRICE

KEY ASSUMPTIONS Buying firm Target FirmExpected Growth rate for next 5 years

12% 20%

Expected Growth rate for next 5 years

10% 7%

Risk premium 5.5%Current risk 6%Final Valuation 2.7 bn $Cost Synergy 1.17 US bn $

VALUATION & FINANCING

Discounted Cash Flow Model was used for valuation & calculation of cost synergy

Amount paid 2.4 bn $ + 600 mn $ (towards JLR pension fumd)

Financing2.4 bn $ through equity instruments600mn $ was raised by issuing securities in foreign markets

TATA

Motor (R

evenue

)

JLR (R

evenu

e)

TATA

Motors(

PAT)

JLR(PA

T)05

10152025

9.1

0 0.5 0

20 21.2

0.6 1.31

JLR's Contribution

2007 2015 #REF!

IMPACT OF ACQUISITION

TATA MOTORS’S KEY PRODUCT AND SERVICE PORTFOLIO

 

 VOLUME 

To sell 0.5 million units by 2020

 

Monthly wholesale sells in units

46000 Jaguar XE and Land rover discovery launchTATA Nexon series in SUVTATA Kite sedan & Hatch back seriesInternationalisation of Commercial Vehicles segment

 MARKET SHARE To consolidate the pole position in Commercial vehicle segmentTo be within top three passenger vehicle player by 2020 To be the leader in defence sector

Percentage share of market segment

75% 10%  60%

Customisation of HCV, LCV sector. Increased focus on better designs & fuel efficiency. Investment on ULTRA & PRIMA segmentLaunch of new products, improved dealership network, AMP ArchitectureCumulative investment of 2000cr/year into the prospective 100bn$ industry in terms of R&D and manufacturing facilities

 CUSTOMERS To top the automobile industry in terms of customer satisfactionUnderstand product/service feedback; redress complaints; suggestions on product development

Customer Satisfaction IndexJD work survey

920/1000 Online common CRM platform for real time feedback from customers & channel partnersTo triple sales/service network

 DEALERS Building capacity and technical know-how; improving and delivering better response to customersTo do better than industry avg. of 827/1000

Dealer satisfaction Index Improve from 756 to 900/100 To integrate all dealers into CRM-DMS.Better support from TDCLBetter support from TML staff, training facilities, improved warranty and after sales services

 FINANCIAL To reduce trade receivablesROCEProfitabilityAsset utilizationOperating profit per shareInventory turnover

% decreasePercentageOperating MarginTotal Asset turnover ratioINR/shareInventory turnover ratio

10%30%15%4.530010 

VAVE programme to cut down cost of 500cr in FY 2016 and 900cr in FY2017Application of lean systems in SCM and process engineeringCost reduction via proper sourcing of materials & economies of scaleProper quality management system

Strategy Objectives Measures Targets Initiatives

BALANCED SCORECARD ( VMCDF Model of TATA MOTORS)

STRENGTH Tata’s strong management capability

Strong monetary base to invest

Synergy due to Corus, TACO and TCS

Experience in growing market like India

New product development and brand building experience

JLR would give TAMO an in-house R&D and designing capabilities

Better utilization of cash reserves available with TAMO

Reduce production cost of JLR by synergizing better with other TATA cos like Corus

Acquisitions like JLR will help TAMO in competing with brands like Merc. etc.

Proven Management and brand building capabilities would facilitate faster JLR turnaround

Strong financial muscle will help TAMO to invest in R&D and produce new better products

Improve risk profile of TAMO with diversification in different markets

WEAKNESS Weakness Inexperience in

Handling luxury automobile brand

Inexperience in turning around loss making company

R & D and designing capabilities

JLR experience and designing capability would help TAMO in improving their existing products in Indian markets.

JLR’s strong brand image will ease acceptance of TAMO in international markets

Keeping the existing management team of JLR make turning around

easier

Leverage experience gained with Tetley and Corus in allaying market apprehensions about acquisition

Make Jaguar design center as their global design HQ

Use Jaguar channel to distribute TAMO brands without merging the brands

SWOT ANALYSIS

OPPORTUNITIES •Rising appetite for luxury automobiles in growing markets like India and China •Established European brands available at affordable investment•Support from Jaguar in Technology, Engine, IT, Accounting•Complete product line with addition of luxury brands•Access to European & American market

THREAT •Volatility in market driven by new products •Strong presence of competitors like Mercedes, BMW, Lexus and Infinity •Receding sales and brand image •Downturn making Investment riskier and costlier •90% of TAMO revenues comes from one market alone-India

4215

108

Market Share %(Passenger Vehicles)

Maruti Suzuki HyundaiM&M TATA Motors Ltd

42%

23%

17%6% 3%

Market Share % ( Commercial Vehicles)

TATA MOTORS M&MAshok Leyaland Volvo EicherForce

COMPETITOR ANALYSIS

TML (CV) M&M(CV) TML(PV) M&M(PV)0

10

20

30

40

50

60

TML vs M&M % Market Share

2013 2014 2015

TATA MOTORS MAHINDRA & MAHINDRACSF MEASURE SCORE WEIGHTAG

ECSF MEASURE SCOR

EWEIGHTAGE

Operational Efficiency

Operating Margin

0.16 0.25 Operational Efficiency

OperationalEfficiency

0.19 0.25

Constant Innovation

New Product Launches

0.12 0.3 Constant Innovation

New Product Launches

0.21 0.3

Flexibility & Strategic Alliances

No. of JVs , alliances ,acquisitions for strategic competitive advantage

0.14 0.2 Flexibility & Strategic Alliances

No. of JVs , alliances ,acquisitions for strategic competitive advantage

0.12 0.2

Dealership CSI , DSI, SCM

0.17 0.25 Dealership CSI , DSI, SCM

0.2 0.25

Total Score 0.59 1 Total Score 0.72 1

COMPETITOR ANALYSIS ON BASIS OF CSF

M&M TATA MOTORS

Operating Margin % 12.1 14.9

Net Working Capital to Sales % 8.4 0.6

Debt to equity ratio x 0.9 1

Sales to assets ratio x 0.8 1.1Return on assets % 6.6 7.9Return on equity % 12.1 24.9Return on capital % 16.6 23.6Exports to sales % 3.1 1.5

COMPETITOR ANALYSIS (FINANCIAL)

COMPETITOR ANALYSIS OF JLR

32%

27%23%

18%

Market Share % ( Emerging Econom-ies)

Audi BMWMercedez JLR

JLR AUDICSF MEASURE SCORE WEIGHTAG

ECSF MEASURE SCOR

EWEIGHTAGE

Operational Efficiency

Operating Margin

0.22 0.25 Operational Efficiency

OperationalEfficiency

0.2 0.25

Constant Innovation

New Product Launches

0.24 0.3 Constant Innovation

New Product Launches

0.24 0.3

Flexibility & Strategic Alliances

No. of JVs , alliances ,acquisitions for strategic competitive advantage

0.15 0.2 Flexibility & Strategic Alliances

No. of JVs , alliances ,acquisitions for strategic competitive advantage

0.16 0.2

Dealership CSI , DSI, SCM

0.24 0.25 Dealership CSI , DSI, SCM

0.24 0.25

Total Score 0.85 1 Total Score 0.84 1

COMPETITOR ANALYSIS ON BASIS OF CSF

• Nano• HCV• MHCV• LCV• Trucks & Buses

• Passenger Vehicles

• Defence Purpose Vehicles

• Jaguar Land Rover• Municipal Purpose

Vehicles

STAR ?

DOGCASH

COW

BCG MATRIX

  Near Term (<- 2 years) Mid Term (2-5 years) Long Term (5-10 years)

Growth Areas  

Passenger Vehicle segmentCommercial Vehicle Segment

Defence/Municipal purpose Vehicles

Hybrid fuel powered Vehicles

High Level Tasks  

Design & launch of NEXUS series SUVs and KITE series Hatchbacks and carsCustomisation & Internationalisation of MHCV & LCV brandsJaguar XE and Land Rover Discovery launch

Capex investment of 900 cr INR /YearTarget order bookings of 6000cr INR/year3.5bn$ investment in JLRLaunch of JLR’s Global Fleet StrategyAMP & VAVE Strategy

Design of phase 2 of oneCAT VehicleFinal design and launch of SIGNA range of commercial vehicles 

Potential Benefits to be achieved  

Increase in sells of Passenger & Commercial VehiclesIncrease in export of Commercial VehiclesMarket share growth of JLR

TML will tap into 100bn$ defence sector in IndiaIncreased production and improvement marketing channel for JLRCost reduction(Operations)

More investment towards sustainable development

Rewards  

Increase of market share in passenger vehicle segment from 5.7 to 10%Consolidation of top position in Passenger vehicle segment at 75%Increase of JLR sales by 17%

30-40% revenue from defence segmentJLR sale will increase from 17% to 25%Cost reduction to the tune of 900cr INR

First mover advantage in this sector1st ever company to launch a vehicle powered by Air 

Risks  

Increased competition Economic slowdown in Brazil, China and Europe

Increased competition Economic slowdown in Brazil, China and Europe

Investments are hugeExact timeline of market need not guaranteed

Key Success Factors  

Improved dealership and services network to push sales of new productsAgile product strategy team

Improved design & service in defence sectorRobust supply network to cater to global fleet demand of JLR

Collaborative R&D b/w TML & JLR

ROAD MAP FOR FUTURE

STRATEGIC ROAD MAP FOR FUTURE