Tata Motors – A Jaguar like leap

Date: June 1, 2012         CMP: 225         Mkt Cap: 74,000 crore       P/E: 5.3 times

Introduction

Tata Motors (TM) is a major player in the Indian automobile sector, with a presence across Commercial vehicles and passenger cars. International acquisitions have also helped substantially in growth.

  • TM declared excellent FY12 results: revenues 1,65,000 cr (35% up), and profits 13,574 cr (47 % up).
  • The current market cap of Rs 74,000 crore ranks it #15 in India.
  • Just 33% of revenues are from standalone TM, while the JLR subsidiary contributes a large proportion of revenues and profits, as high as 70% and 90% recently.
  • Key divisions & subsidiaries include TM Commercial Vehicles, TM Passenger cars, Jaguar /Land Rover (JLR), Tata Daewoo Commercial Vehicles, Tata Motors Finance and Tata Technologies.

Lets do a quick analysis of this stock to see where its heading.

Pricing Snapshot

Tata Motors - Price trends - JainMatrix Investments

Fig 1 – Tata Motors – Price trends – JainMatrix Investments

A 5-year view of the share price of TM shows us:

  • Share price has risen by 15% CAGR over the last 5 years.
  • The share has been very volatile, – from a recent low of 139 in Aug 2011, the share rose to 320 in April ’12 and is down to 225 currently.

Financial Snapshot

  • Revenues, EBITDA and PAT have gained by 47%, 64% and 57% CAGR over 5 years.
  • P/E has moved in a range of 5.3-19 times in this period, and is currently at 5.3.
  • Operating margins are excellent at 20%. Profit margins are flat at 8.2%.
  • Dividend has been steady at 200% or Rs 4, indicating a dividend yield of 1.8%.
  • PEG is at 0.1 – indicates very undervalued stock.
Tata Motors - Financial Analysis - JainMatrix Investments

Fig 2 – Tata Motors – Financial Analysis – JainMatrix Investments, click to enlarge

Business Concerns

  • The business concerns around TM include – underperformance of Indian operations, falling margins of JLR subsidiary and poor economic outlook in Europe and some slowdown in even China.
  • However, these are balanced by excellent growth in JLR, capacity additions to cater to waiting lists and strong domestic TM Commercial Vehicle operations.
  • Even with a fall in Operating and Profit margins, the revenue growth has been excellent. This has meant higher EPS, and Earnings growth has pushed P/E down to attractive levels for investors.

Conclusions

  • The fundamentals indicate that TM is a buy at these levels.
  • Price volatility will continue, as TM has generated very high interest among traders. But current weakness should stabilize soon, and Investors can look at entering at these levels.

JainMatrix Knowledge Base:

See other useful reports

  • Adani Port – Infra firm at good valuations V2 – LINK 
  • IT Sector Stocks, the Elephant can danceV2 – LINK 
  • Hindustan Unilever – Too much Euphoria – LINK
  • State Bank of India – FY12 results excellent – LINK 
  • Titan Industries – A Titan for the long run  – LINK 

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