Equity Valuation ofTATA Motors

Presented by:Amit MukherjeeRitu Singh TomarRichi ShrivastavaKeshri. N. TripathiKanhaiya Gupta

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

TATA Motors Ltd

Founded: 1945Founder: JRD TataHeadquarters :Mumbai,

IndiaKey people: Ratan Tata,

ChairmanParent: Tata GroupSubsidiaries: Jaguar Cars

Land Rover

Products: Automobiles and Engines

Revenue : USD 9.07 ▲billion (2006)

Net income: USD $474.0 ▲million (2006)

• Tata Daewoo Website: http://www.tatamotors.com/

• Tata Motors Limited is India's largest automobile company, with revenues 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 the world'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

Global Automobile Industry

Asian Automobile market Growth rate

Growth potential at Global Level • India is on every major

global automobile player's roadmap.

See why?• 4th largest commercial

vehicle market in the world.

• 11th largest passenger car market in the world.

• expected to become the 7th largest by 2016.

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 2.1 million 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

Stunning Growth Rates! India• Passenger car sales grew by

10.84% and crossed the 1 million mark in 2006-07 and record sales of 1,076,408 vehicles.

• Utility vehicles sales grew by almost 12.2% in April-May 2007 and this segment is expected to grow at 20% by 2010.

• Multi purpose vehicles sales grew by almost 21.93% in April-May 2007 compared to the same period last year.

Expected Growth by 2015-16Potential 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.

Exports Potential to become the Global Outsourcing Hub

Export of auto components

(USD million )

456 625 578 760

1,800

10201400

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

•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

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.

TATA’s 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 53.54Book Value (Rs.) 202.54 177.33 143.58

DPS (Rs.) 15.00 15.00 13.01

TATA’s 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

Projects 2008 & onwards

• Compressed Air Car• Tata Nano• Low cost low carbon

vehicle• Land rover & Jaguar• Electric vehicles

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 Ltd’s 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.

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

Expected Growth Rate ‘g’• On the basis of Global, domestic & companies past

growth 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

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%

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

Conclusion • Current market price Rs. 500.15(NSE) & 500(BSE)• Intrinsic value Rs. 686.82

• Undervalued.

• Buy Tata’s 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).

Thank You