M c I n t i r e I n v e s t m e n t I n s t i t u t e 1
McIntire Investment Institute At the University of Virginia
Tata Motors Limited (ADR) (NYSE:TTM)
Prepared by Rahul Madhu| 10 April 2011
M c I n t i r e I n v e s t m e n t I n s t i t u t e 2
• History • Thesis Points • Misperceptions • Risk • Catalysts • VAR • Recommendations
Presentation Outline
M c I n t i r e I n v e s t m e n t I n s t i t u t e
• Founded in 1945 – Tata Locomotive and Engineering Company Lt.
• Started building trucks in 1954 under collaboration from Daimler AG
• Restrictive policies (License Raj) crippled demand.
• Major Indian automobile manufacturer.
3
History
M c I n t i r e I n v e s t m e n t I n s t i t u t e 4
Stock Overview
M c I n t i r e I n v e s t m e n t I n s t i t u t e
In USD
Last price $28.06
Market Cap $17.76 b
EPS (TTM) 1.60
P/E 17.40
Forward P/E 8.20
2010 Revenue $21.02 b
Yield 1.14 %
ROAE 56.45
5
Financials
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Rapidly growing
automotive market
Strength of the brand
name
Synergy between
new acquisitions
6
Thesis Points
M c I n t i r e I n v e s t m e n t I n s t i t u t e
• With a rapidly expanding economy, more people have expendable funds to buy cars.
7
T. P: #1 Growing Market
M c I n t i r e I n v e s t m e n t I n s t i t u t e 8
• Tata Motors would be able to capitalize on this demand by offering vehicle well suited for Indian tastes
Indian Automotive Industry
801.36
814.611
894.796
1161.523
1511.157
1628.755
2019.808
2253.999
2332.328 2641.55
3536.783
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Vehicle production (1000 units)
M c I n t i r e I n v e s t m e n t I n s t i t u t e 9
Indian Automotive Industry
Automobile per Capita (1,000 people)
Canada 582
USA 440
Japan 451
Germany 495
France 451
Earth 96
India 7
M c I n t i r e I n v e s t m e n t I n s t i t u t e
• Tata Motors mostly focus on making commercial vehicles – The reality is that Tata Motors is a
full range motor vehicles manufacturer
– Tata Nano to the Range Rover.
10
Misperception
M c I n t i r e I n v e s t m e n t I n s t i t u t e 11
Full Range of vehicles
M c I n t i r e I n v e s t m e n t I n s t i t u t e 12
Source: TM 2010 10K Report
0
50
100
150
200
250
300
2008 2009 2010
Passenger
UV
LCV
M&HCV
Sales (1000 units)
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Common Mispricition
• Most of Tata Motors revenue comes from India. – Truth: Tata Motors sells
vehicles through its dealerships in 26 countries and exports to 60 countries all around the globe.
13
Misperception
M c I n t i r e I n v e s t m e n t I n s t i t u t e 14
• More than 50% of the revenue comes from international markets.
Diversification
M c I n t i r e I n v e s t m e n t I n s t i t u t e 15
• Ventured into new industrial products – HCV (1954) under
partnership from Daimler AG
– LCV in 1986 with the 407 truck range
– Passenger segment in 1998 with the Tata Indica.
Organic Growth
M c I n t i r e I n v e s t m e n t I n s t i t u t e 16
Tata Motors international – Tata Daewoo Commercial Vehicle
(2004) – Tata Hispano (2005) – Marcopolo India JV(51:49) (2007) – Jaguar Land Rover (2008) – Fiat India JV(50:50)
Inorganic Growth
M c I n t i r e I n v e s t m e n t I n s t i t u t e 17
40%
54%
5% 1%
Tata Motors
JLR
TDCV
Tata Hispano
Revenue Break-down
M c I n t i r e I n v e s t m e n t I n s t i t u t e
• Tata Motor's management philosophy places strong emphasis on adapting to cultures/traditions of the acquired company
18
T. P: #2 Synergy
M c I n t i r e I n v e s t m e n t I n s t i t u t e
• Preserves identity and culture of the company by retaining top management.
• Workers would be more willing to work with the people they trust
19
TDCV/Tata Hispano
M c I n t i r e I n v e s t m e n t I n s t i t u t e
• The Tata name brings with it a great sense of social responsibility. – ~4% profits to charity
• Strong emphasis has been placed on creating a sound workforce. – Reduces work strikes – Increases efficiency
20
T. P: #3 Brand Name
M c I n t i r e I n v e s t m e n t I n s t i t u t e
• ~67.4 billion dollar conglomeration
• 114 different companies • Tea to Steel • 11th most reputable
company in the world • 65.8% of the ownership in
held by Charitable trust
21
Tata Group
M c I n t i r e I n v e s t m e n t I n s t i t u t e 22
46%
16%
15%
7%
4%
12%
Passenger
Maruti Suzuki
Hyundai Motor
Tata Motors
M&M
GM
Others
64%
13%
15%
2% 6%
CV
Tata Motors
M&M
Ashok Leyland
Eicher
Others
Tata Motors Vs. Competitors
M c I n t i r e I n v e s t m e n t I n s t i t u t e
• Optimizing synergy – R&D collaboration
• Land Rover/Jaguar expansion into China
• Tata Daewoo expansion to Africa
• Overall recovery of the global economy.
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Catalysts
M c I n t i r e I n v e s t m e n t I n s t i t u t e
• High non-food related inflation
• International segment could be affected by slow recovery
• Bureaucratic risks • RBI increasing interest rates
24
Risks
M c I n t i r e I n v e s t m e n t I n s t i t u t e 25
• “The Tata Ace is very reliable, because I can run the truck for months with little maintenance and I spend only 400 Rupees on Petrol” --Das
VAR
M c I n t i r e I n v e s t m e n t I n s t i t u t e 26
Valuation
OM (%) P/E ROE
Tata Motors 10.14 17.54 56.45
Toyota 2.64 20.90 4.86
Daimler 7.24 12.20 13.50
Volkswagen 6.02 23.66 16.82
Nissan 6.08 15.55 1.59
Fiat 3.07 15.87 1.30
M c I n t i r e I n v e s t m e n t I n s t i t u t e
• Initiate a 4% Position at Current prices
27
Recommendation
M c I n t i r e I n v e s t m e n t I n s t i t u t e 28
Questions