Wednesday, July 9, 2008

Tata Motors

I had in my earlier post on innovation and investment talked about how the Tata group made it to the 6th position in Forbes Survey of most innovative companies. This was driven by the innovative work that went it to creating the Nano at the $ 2500 price point which could potentially revolutionise road transportation in the developing world.

I was reading the Tata Motors balance sheet and a lot of interesting things stood out.

The company has evolved over the years from a truck major to a full fledged auto major with interests spread across the globe.

1) Commercial vehicles
The company continues to hold over 60 % of the marketshare in the Indian market. The company has managed to maintain marketshare with products like the ACE. It is interesting to see extensions that the company has managed by extending the ACE platform to products like Magic & Winger. Sitting in the cities we might not notice these products but in rural India ACE has been a great success.

The company has registered export growth of about 11% to 39850 vehicles.

Bus Segment : The company is aggressively expanding its marketshare in the Bus segment. It has setup a joint venture in India with Marcopolo from Brazil for the same. The company also holds a 38% stake in Automobile Corp of Goa which is one of the largest bus body supplies in India. It is constantly increasing its stake in the company.

Defence: The company is aggressively looking at the defence segment in line with the groups strategy of focusing on this segment. It has unveiled a range of products in the current Auto Expo for the defence segment.

Global Network
Korea - Tata Daewoo commercial vehicle company managed a 38% growth in volumes. It increase marketshare from 24% to 32% in the HCV segment and from 28% to 34% in the MCV segment. It is the largest exporter from Korea in the HCV segment. Net profit increased by 81%.

Thailand & Asean countries- It has setup a subsidiary in Thailand and has introduced a 1 ton pickup truck in Thailand. The Thailand subsidiary will cater to the Asean market.

South Africa - It has setup a subsidiary in South Africa for assembling and marketing of the companys product in the African market.

Spain - It acquired a 21% stake in Hispano Carrocera which is a leading bus manufacturer in Spain. Tata Motors has a option to up its stake in the company. Hispano has a manufacturing plant in Spain which caters to the European market and one in Casablanca to cater to the Moroccan and North African markets.

Assembly Operations - The company has assembly operations in Malaysia, Kenya, Bangladesh, Spain, Ukraine, Russia and Senegal..

Beyond this the company has its sales and distribution network spread across the world. This link on the company site gives a nice flavour on the distributor network .

2) Cars - Passenger Vehicles
The car portfolio of the company comprises of the Indica, Indigo, Sumo & the Safari. Though the car business lost marketshare last year because of the delay in the launch of the new Indica, the company should gain traction with new launches this year.

The biggest upside in the car business would be the launch of the Nano in the second half this year.

The Jaguar and Land Rover acquisition moves the company up the value chain and more importantly takes the car business to the next level in terms of international spread. JLR has sales in over 100 countries with over 2200 dealers. It clocked abou $15 billion of revenues for the year ended Dec07. Jaguars launch of the XF series has improved both sales and bottomline in the first quarter.

The company also has a joint venture with Fiat in India for the manufacture and distribution of Fiat cars in India like the Palio and Stile.

3) Construction equipment.
The company has 60% stake in a joint venture with Hitachi in India called Telcon and recorded sales of over Rs 2700 crores last year. Telcon also acquired stake last year in two Spanish companies Serviplem and Comoplesa by acquiring 79% and 60% of these companies.

4) Other Business
a) Tata Motor Finance
The company disbursed nearly 9000 crores last year for financing of commercial vehicles and cars making it one of the largest vehicle finance companys in the country.

b) Auto Components
Tata Autocomp ( TACO) - The company owns a 50% stake in Tata Autocomp which is the groups holding company for promoting domestic and foreign joint ventures in auto components and systems.

Tal Manufacturing - Subsidary in the area of machine tools, fluid systems etc. It signed up a deal to supply structural components to Boeing for the Dreamliner 787 project.

HV Transmissions - Manufactures gear boxes and axles for heacy vehicles.

c) Tata Technologies - provides specialised Engg & Design Services, PLM, etc to leading global manufactures. It crossed the 1000 crores mark last year in terms of topline.

I like the the way the company is both expanding its product and global footprint. I have great faith in the Tata groups ability to handle cross border acquisitions and make them profitable. They demonstrated it with Tetley & Daewoo motors and are managing the Corus acquisition fairly well.

The company did about Rs 40,000 crores of consolidated topline last year with a bottomline of 2000 crores. The stock has got hammered down on count of higher fuel prices , economic slowdown and higher input costs.

Stock is available on a PE of about 8 at Rs 400. I am not recommending a buy at this point and wait to see the level of equity dilution that will take place to fund the JLR deal. Also the next few quarters are going to be challenging for the company. But on a more long terms basis I like the way the company is evolving itself to become a serious player in the global automotive market.


Mahendra Naik said...

Excellent analysis. I am tempted to buy the stcok, but what worries me is that internationally none of the auto cos are doing well. As you say long term there is very little doubt on this one, but the usual failing of all investors "We'll get it at a stll lower price" afflicts me here.

Ninad Kunder said...

Autos as a business structurally is in a downturn worldwide. Higher oil prices coupled with shorter product life cycles.

In case of Tata Motors, i would wait for a few quarters to look at how how they will fund the JLR deal and hence the subsequent equity dilution.

Also demand contraction due to higher oil prices could adversely affect the company. One doesnt know where oil will finally rest.

So will wait for a few quarters before I take a call. In itself it is on track to become a great company but not neccassirly a great stock.