Financial

Analysis
Tata Motors
Prepared by
Santonu; Swastayan; Bharat;
Shreerang;
Saurabh; Prakash; Mayank
Roadmap
• Company History
• Product range & Organization
• Macro environment
• Variables
• Market structure
• Risk identification
• Trends in Industry
• Recent Performance of Tata Motors
• Value Chain Analysis
• Identification of Financial & Non Financial Indicators
• Analysis of the indicators
• Final Comments
• References
Company history
• India’s Largest Automobile company
• Consolidated Revenues of USD 14 billion (2008-09)
• Leader in commercial vehicle ( Market share:63.8%)
• Top Three in Passenger vehicle(Market share:13%)
• 4th Largest Truck Manufacturer & 3 largest bus manufacturer
• Manufacturing units:
• Jamshedpur, Pune, Lucknow, Pantnagar, Dharward .
• Nano Plant : Sanand (Gujarat)
• 3500 touch points
• Made history when world’s cheapest car “Nano” was unveiled
• Some major Acquisitions:
• Hispani Carrocera (2009) [Spanish bus manufacturer]
• Jaguar and Land Rover (2008) [prestigious brand]
• Daweeo Commercial vehicles, Korea (2004)
• JV with Marco Polo (Brazil), & Thonburi Auto Plant (Thailand)
Product Range
Organization Structure
 Organization Structure
• Domestic Operations
• Commercial Vehicle business unit
• Medium and Heavy Commercial vehicles
• Light & Small Commercial Vehicles
• Buses & Passenger vehicles
• Spare parts, AMC, and RECON( Reconditioned Business)
• Passenger Business unit
• India’s first indigenously designed compact car Indica
(Market Share:10%)
• Bought iconic brands Jaguar and Land Rover in 2008
• Product Range from one lakh people’s car to high end
luxury models
Macro Environment
Trends
• Political and Legal Factors
• Emission
• Safety
• Government Policy
• Economic Availability
• Availability of Loans
• Socio-Economic
• Technological
• Infrastructure
• Demographic
• Market Competition
 Political Factors
Pre-1998 1998-2008 2008 onwards
First stage emission Increasingly Stringent Emission norms as of
norms Emission & Safety 2000:
introduced. Regulations e.g. Bharat Bharat Stage IV (EURO
Stage II etc IV) in Metros
Central Motor Vehicle Alignment of Indian No major change
Rules (CMVR) came regulations
into force from 1989 (AIS/ BIS) with European
and regulations was
Serious enforcement attempted.
of
Regulations came
into
effect.

The automobile The Finance Bill 2006 has Policies continue to

Section underwent given a further boost to promote
delicensing and the Automotive Industry growth.
opened up for 100 by
percent foreign direct reduction of the excise
 Economic & Infrastructural
Pre-1998 Factors 1998-2008
High interest rates Lowering of car finance
and interest Rates .But after
stricter lending Economic slowdown in
norms 2008, the rates have again
gone up.
Very Poor There are inadequate ports,
connectivity across insufficient feeder rail lines to
the Country the
ports, and bad roads
Port Infrastructure The Ministry of Railways is in
was inadequate the
to handle to process of developing freight
Exports corridors in Railways.
2008 onwards
Car finance has shown strong sign
of recovery.
The GOI has also launched a
program for the construction of
“66” 500 kilometers of national
highways of which 50 000
kilometers is expected to be
completed by 2015.
Specialized port infrastructure for
handling vehicle exports is being
Developed especially near
the main automotive
clusters near Mumbai and Pune in
the West,
Chennai in the South, and
Kolkata in the East.

Market started Foreign Players set up their Cut throat competition in the
opening up plats, market.
Increasing for example Ford, Mercedes,
competition. Skoda, Toyota, Hyundai,
Market Structure

• The Automobile
market both in
India and abroad
is extremely
competitive
• The customers
are very powerful
• Threat of
substitute
products is very
high as well
 Sources of Strategic &
Business Risk
• Interest Rates & Credit Availabilty
• Upward movement in Input costs
• Exchange Rate Risk:
• Exports are 9.8% of the turnover
• imports constitute 4.6% of material consumption
• Freight Rates: Slowdown in freight movement & increase in fuel
price
• Railways as competition
• Overseas Acquisition of Jaquar and Land Rover operations
• Volatility in Oil Prices
• Domestic Markets affected by cyclicity of Automobile industry &
slowdown of economy
• New Competition like Daimler, Volvo, Scannia, Ashok Leyland
• Investments in New projects like Nano & World Truck
• Environmental Regulations
 Automobile Industry: Trends
• Macro trends:
• focus on energy prices & energy efficiency
• Environmentally conscious consumers attracted to new technologies
• Cost pressures due to growing competition between international
and domestic car manufacturers
• Employment of contract employees over permanent staff
• Market trends & Forecast:
• The Big Three U.S. automakers approx 76 % of U.S. passenger
vehicle; Japanese automakers 18%; European 2%
• hybrid market will top out at 3 percent by 2010 (JD Power)
• Currently 800 million cars in active use. By 2050, a projected 3.25
billion cars in India & China
• Bigger investment in technology
• Innovations at process level and big consolidations
• operating profit of the industry as a whole may go southward
 Financial Performance
2007-2008
2008-2009
• GDP growth down to 6.7%
• Sales volume 13.5 % lower than
2007-08
• Domestic commercial vehicles
declined by 15.2 %
• Passenger vehicles volumes
declined by 4.8 %
• Exports declined 38.6 % (global
meltdown and currency
fluctuations)
• Profit after Tax (PAT) decreased
by 50.7%
• Basic EPS dropped to 22.70
• Balance Sheet size of the
Company increased to Rs.
26,425.64 crores as on March
2009
• Gross debt (total of secured and
unsecured loans) increased to
Rs. 13,165.56 crores
• GDP growth to 9% in FY 07-08
• Commercial vehicle industry which
grew by over 33% in FY 06-07 posted
an 8.1% growth this fiscal.
• The passenger vehicle industry
managed to grow by 11.1 %
• Vehicle exports also grew at a lower
rate of 11.9% as compared to 14.8%
previous year
• Profit after Tax (PAT) increased by
6.03%
• Basic Earnings per Share (EPS)
increased by 5.79% to Rs.52.64
• Balance Sheet size of the Company
increased to Rs. 15,095.74 crores in FY
2007-08 from Rs. 11,665.72 crores in
FY 2006-07.
• Gross debt (total of secured and
unsecured loans) increased to Rs.
6,280.52 crores as on March 31, 2008
as compared to Rs. 4,009.14 crores as
on March 31, 2007
 Non Financials
Pre -1998 1998-2009 2009 onwards
•Jamshedpur Expansion •Enhancing production
plant(1945) Continued capabilities at its 3
existing plants

•Primarily consists •New capacities at

of Uttarakhand forAce as
Manufacturi Truck factory, also JV with MarcoPolo
ng Engine Factory etc. SA, Brazil

•Pune Plant (1966) New plant at Dharwad

and has a and Thornburi (plant at
Production Thailand)
Engineering
•Enable TM improve
existing ones
without
resorting to
 Non Financials
Pre -1998 1998-2009 2009 onwards
JIT & integrated Kanban card The Supply chain of
facilty to build its signaling & Nano is
own castings purchasing the main contributor
components from for low cost.
suppliers globally
Emphasis on Robust IT systems Changed
reducing transport both SAP focus from
costs by relocatingand Siebel to have competitive price
Supply Vendors close to seamless and low cost to
Chain the plant integration with globally
Strategy Customer, competitive prices
Supplier, dealers from globally
competitive
suppliers.
80 % of Ariba Spend
components from Management to find
200 odd vendors new suppliers,
rationalize its
supply base, and run
on-line
Financial & Non-financial
indicators
• Value chain based approach:
• Understand the synergy between critical area of a
typical automotive value chain and the economic
aspect
• Combination of Operational and Economic aspects
• Financial and non financial area of automotive business
• Assess the competitive advantage
• Estimate risk
Financial & Non-financial
indicators…
Financial & Non-financial
indicators…
The diagram has 2 distinct chains which is further broken into smaller value entities:-

• Operational value chain

• Economic value chain
 
Operational :-
• Supply Chain: Supply chain management (SCM) is a critical factor an automotive
company. Success depends on how successfully it manages its Supply chain in terms
of material movement, cash flow and information flow

• Manufacturing: Setting the right indicator to measure the efficiency of

manufacturing activity is key for Tata Motors to be competitive in this Global market

• Quality: Quality leadership is mandatory to succeed in a global competitive market,

hence the choice of suitable indicators

•  Technology: With the environmental, safety and quality requirements getting

stringent, technology is going to play a key role in automotive industry. Hence the
need of monitoring the various investments in Technology

•  Collaboration: Collaboration across design, supply chain, manufacturing and quality

is critical. Though it’s very difficult to set indicators to measure the same, tracking
trends in terms of operational parameters do give fair idea
Financial & Non-financial
indicators…
• The economic value chain comprises of the asset
base, the employed capital, stake holder’s
expectation etc. A simplified view is as follows:-
Equity Debt

Assets Sales Earnings Dividend

Financial & Non-financial
indicators…
Based on the above considerations we have arrived
at the following indicators.

• Operational ratios, covering SCM, Manufacturing, Quality

part of value chain ( both financial and non-financial
aspects)
• Risk indicators
• Overall performance indicator
• Technology indicators
• Confirmatory indicators
Financial & Non-financial
indicators…
Operating
Ratios

Area Ratio

SCM Creditors P
SCM Creditors T
SCM Debtors Co
SCM Debtors Tu
Financial & Non-financial
indicators…
Risk
Indicators
• Degree of Operating Leverage
• Degree of Financial leverage

• Apart from the above risk indicators the following

indicators can be used to measure the environmental risk.
• Environment consciousness
• Alternative Fuel Models
• Environmental Management Expenditure

• Indulges in many CSR initiatives (fuel powered vehicles, reduce its

Carbon footprint

• All these initiatives show Tata Motor’s commitment

towards Environmental Management Expenditure.
Financial & Non-financial
indicators…
Overall
  Performance
Indicators

Indicator Ratio

Profitability Operating

Profitability Value Add

Profitability Return on
Financial & Non-financial
indicators…
Technology
• To mitigate the risk of substitute products Telco should invest heavily in
Technology and new product development. We suggest the following
indicators to measure the efforts to mitigate this risk.
• IN terms of Technology Strategy, Tata Motors have been being steadily
investing to develop In-House capabilities. Tata Motors have also
acquired a design company in UK with 1400 engineers that work closely
with ERC to design automotive of global standard

• Jaguar acquisition Access to high end technology

CONFIRMATORY
RATIOS
Ratios  Used to measure synergy in value chain
• The ratios that are considered
• Interest Coverage Ratio
• Altman’s Z-Score Analysis (to understand the synergy of value chains)
• Extended DuPont
• SGR analysis ( to understand the sustainability of growth)
Financials Common Size & Trend
Statements for the company
Computation of ratios under each category and
analysis

It is to be remembered that ratios

don’t bring out
any information in isolation; hence
making any
opinion based on a particular
indicator may lead
to serious error.
Financials Common Size & Trend
Statements for the company
• We have used the percentage values of common
size analysis to determine the movement of the
financial indicator viz-a-viz sales or total assets,
the common base considered, over the years.
Following are the trends of financial indicators;
• Gross & Net Fixed Assets
• Raw Material, WIP and Finished goods
inventory
• Receivables & Sundry Debtors
• Industrial Sales of goods
• Marketing, Distribution and Financing
expenses
Financials Common Size & Trend
Statements for the company
• Ratio Analysis : Refer file Ratio Final Final _f
Trend Graphs
Trend Graphs
Final Comments

• Tata Motors embarked on a multi-stage turnaround

strategy and has managed to achieve good efficiency
• Operational and supply chain efficiency improved.
• Better inventory turnover ratios, manufacturing efficiencies,
its bargaining power etc
• Expansion into non cyclic businesses, International
expansion to hedge economic and country risk
• R&D wing ERC (Engineering Research Center) has been
strengthened
• Long term sustainable holistic strategies to mitigate
business risk by investing in Green technologies and CSR
activities
• However, the Z score trend is a matter of concern
• Retained Earnings/Total Assets
• Market Value of Equity/Total Debt
Appendix 1 -choice of
period of analysis
• Cyclic industry
• Chosen period ,1999-2009 captures company’s
performance during one complete business cycle.
Appendix II-Formulae
and justification for
ratios
• Refer Pg 37 of docx file
Appendix II-Formulae
and justification for
ratios
• Refer Pg 37 file Ratio Final Final _f
Appendix III-Formulae for
confirmatory ratios
Interest Coverage Ratio = EBIT / Interest
Altman’s Z-Score Analysis
• The Z value is defined as under,
Z = 1.2 X1 + 1.4 X2 + 3.3 X3 + 0.6 X4 + 0.999 X5 Where
X1 – Net Working Capital/ Total Assets; X2 – Retained
Earnings/Total Assets; X3 – EBIT/Total Assets; X4 – Market
Value of Equity/Total Debt; X5 – Sales/Total Assets

Extended DuPont ratio = Total Asset Turnover Ratio *

Total Leverage Ratio * Cash Profitability Ratio * FCF
Ratio * Degree of FCF Leverage
SGR analysis:-
• SGR = Net Profit Ratio * Asset Turnover Ratio *
Retention Ratio * Total Leverage Ratio
• = (Net Profit/Net Sales) * (Net Sales/Total Assets) *
(Retained Earnings/PAT) *
• (Total Assets/Net Worth)
Thank You