Research Report on Tata Motors

Summary

Research Report on Tata Motors
Tata Motors is a renowned Indian automotive manufacturer, deeply rooted in the country's industrial landscape. Established in 1945 as Tata Engineering and Locomotive Co. Ltd. (TELCO), the company was later rebranded as Tata Motors in 2003 to reflect its expanded focus on the automotive sector. Tata Motors is a subsidiary of the Tata Group, one of India's largest and oldest conglomerates, which has played a pivotal role in shaping the nation's economic and industrial development. The company boasts a diverse and comprehensive product portfolio that spans various segments of the automotive industry. This includes passenger cars, commercial vehicles, utility vehicles, and even military vehicles. Tata Motors has made a substantial mark in both domestic and international markets, with its products sold across Asia, Africa, Europe, and South America. Their global presence includes manufacturing facilities and distribution networks in several countries, making them a truly global automotive player.One of the landmark moments in Tata Motors' history was the acquisition of Jaguar Land Rover (JLR) in 2008. This strategic move expanded their reach into the luxury and premium automobile segments, solidifying Tata Motors' position as a significant international player. The integration of JLR into their portfolio has been marked by continued investment in research and development, resulting in cutting-edge innovations and advanced automotive technologies.

Overview and history of the Tata Motors:

Tata Motors Limited is an Indian multinational automotive manufacturing company and a member of the Tata Group, one of India's largest and oldest conglomerates. Founded in 1945 as Tata Engineering and Locomotive Co. Ltd. (TELCO) by the Tata family, Tata Motors has a rich and diverse history. Here's an overview of its history:

1. Foundation and Early Years (1945-1990s):

   • Tata Motors was established as Tata Engineering and Locomotive Co. Ltd. (TELCO) in 1945, with its primary focus on manufacturing locomotives and other engineering products.
   • In 1954, Tata Motors signed a collaboration agreement with Daimler-Benz of Germany to manufacture commercial vehicles in India. This partnership laid the foundation for Tata Motors' commercial vehicle division.
   • In 1983, Tata Motors introduced the Tata 407, a light commercial vehicle that would become immensely popular in India and neighbouring countries.

2. Expansion and Diversification (1990s-2000s):

   • In 1991, Tata Motors launched the Tata Sierra, its first passenger car, marking the company's entry into the passenger vehicle segment.
   • The year 1998 saw the launch of the Tata Indica, India's first indigenously designed and manufactured passenger car.
   • In 2004, Tata Motors made a global impact by acquiring the British automaker Jaguar Land Rover (JLR) from Ford Motor Company. This acquisition expanded Tata Motors' global footprint significantly.

3. Global Expansion and Innovation (2000s-Present):

   • Tata Motors continued to expand its product portfolio, introducing various passenger and commercial vehicles under the Tata brand and strengthening its position in the Indian market.
   • The Tata Nano, introduced in 2008, aimed to be the world's most affordable car but faced challenges and limited success.
   • Tata Motors invested in research and development, focusing on electric and sustainable vehicle technologies. The Tata Nexon EV, an electric SUV, was launched in 2020.

4. Challenges and Restructuring:

   • Tata Motors faced challenges, including tough market competition, quality issues, and financial difficulties.
   • The company initiated several restructuring efforts to improve its financial health and operational efficiency.

5. Recent Developments (2020s):

   • Tata Motors continued to innovate with new vehicle launches and technology advancements, including electric and hybrid models.
   • The company's passenger vehicle division introduced several popular models like the Tata Altroz and Tata Harrier.
   • In 2021, Tata Motors announced its plans to separate its passenger vehicle business into a separate entity, Tata Motors Passenger Vehicles Ltd., to enable strategic partnerships and focus on growth.

    About Management:

     Shareholding Pattern:

  Industry Research:

1. 1. Global Presence: India is a significant player on the global stage, particularly in the manufacturing of tractors, buses, and heavy trucks. This underscores its capability to produce a wide range of vehicles.

   2. Segmentation: The Indian automobile market is categorized into four segments, reflecting its diversity: two-wheelers, three-wheelers, passenger vehicles, and commercial vehicles. Each of these segments has its own market leaders and dynamics.

   3. Market Size: The Indian passenger car market is substantial and has been growing steadily. Its value was $32.70 billion in 2021, and it's projected to expand to $54.84 billion by 2027, registering a Compound Annual Growth Rate (CAGR) of over 9%. This growth signifies the immense demand for cars in the country.+

   4. Electric Vehicle (EV) Boom: The adoption of electric vehicles (EVs) in India is on the rise. In 2022-23, over 2 million EVs were sold, marking a 168% year-on-year growth. This strong momentum is indicative of the shift towards sustainable transportation solutions.

   5. Investment Magnet: The Indian government is actively working to attract investments into the automobile sector. The expectation is to secure $8-10 billion in investments by 2023, highlighting the confidence in the industry's potential.

   6. Industry Transformation: Foreign automakers, like Kia and Volkswagen, have adapted their offerings to align with the preferences of the Indian middle-class population. This adaptation has intensified competition in the sector, benefitting consumers.

   7. Government Initiatives: The Indian government has launched several initiatives to promote the automobile industry. "Make in India," the "Automotive Mission Plan 2026," and "NEMMP 2020" are strategies aimed at boosting manufacturing and research in the sector.

   8. Shift Towards EVs: Major automotive players, such as Tata and Audi, are committing substantial investments to electric vehicles. They recognize the importance of reducing emissions and aligning with global trends towards cleaner transportation.

   9. Charging Infrastructure: One of the challenges facing EV adoption in India is the need for a robust charging infrastructure. Collaborative efforts between the government and private sector are underway to address this critical requirement.

   10. Safety and Scrappage: Initiatives like "Bharat NCAP" and the "Vehicle Scrappage Policy" focus on enhancing vehicle safety and phasing out old, polluting vehicles, contributing to a cleaner and safer road environment.

   11. Global Ambitions: India's aspiration to become a global manufacturing and Research and Development (R&D) hub underscores its commitment to innovation, quality, and competitiveness in the global automotive market.

   12. Government Support: The Indian government is actively encouraging electric and sustainable transportation solutions to reduce emissions and improve urban mobility. This support is pivotal in driving the adoption of cleaner vehicles.

   13. Industry Resilience:Despite various challenges, including the impact of the COVID-19 pandemic, the Indian automobile sector is showing resilience and is expected to bounce back strongly in FY23. The sector is well-positioned to lead the way in shared mobility and sustainable transportation by 2030.

Financial of the Company:

Q1FY23 Earnings Conference Call

Financial Performance:

• Q1 FY24 results: 42% revenue growth, PBT of ~Rs. 5,300 crores, positive free cash flows.
• Growth driven by volume, mix, and price improvements in Jaguar Land Rover (JLR) and commercial vehicles.
• JLR reports highest EBIT and EBITDA in years, strong order book, reduced net debt.
• Commercial vehicles face availability constraints due to BS6 Phase 2 transition, but revenue and profitability improve.
• Tata Motors' market share impacted by vehicle availability, but production ramps up.
• Non-vehicle business, including spares and service, grows 25%.
• Improved sentiment in M&HCV segment, growth in trucks and tippers.
• Small commercial vehicle market shows marginal sentiment increase.
• Growth in M&HCV and passenger carrier segments, passenger market returning to pre-COVID levels.
• 16% of sales generated from digital channels.

Product and Market Updates:

• Product range migrates to BS6 Phase 2, enhancing cost of ownership, performance, connectivity, comfort, and convenience.
• Positive feedback from over 250 influencers on influencer testimonials and advocacy event.
• Field trials of BS6 Phase 2 vehicles indicate performance improvement and customer acceptance.
• Focus on realization improvement and retail growth in Q2 for Vahan share recovery.
• Scaling up EV supplies for ACE electric vehicles and electric buses, FAME certificates available for all variants.
• Continued growth in spares and service penetration.
• Focus on international market share and margin improvement.
• Deployment of over 100 electric buses and start of DTC CESL operations.
• Fleet Edge digital platform manages 450,000 vehicles and introduces subscription models.
• E-Dukaan online marketplace grows by 250% in Q1 FY23.
• PV domestic market share at 14.2%, EV penetration at 14%, CNG penetration at 8%.
• Q2 volumes on track for 100,000 units for full year.
• Focus on delivering value and restoring market share in PV segment.
• Emphasis on retail momentum, hatches, Tiago EV, and Altroz iCNG.
• Cost reduction opportunities in steel prices and battery costs.
• Expanding EV network and service capability.
• Confident about EV margin outlook with tailwinds from cell prices, PLI, localization, and new generation aggregates.
• Order backlog for EVs and ICE vehicles ranges from 3 to 12 weeks.
• Order banks for non-3 vehicles decline, but Range Rover exhibits highest loyalty in the industry.
• Cost reduction opportunities in material costs, manufacturing efficiencies, and warranty costs.
• Confidence in JLR's BEV offerings and transition from ICE to BEV.
• Expected increase in China order bank, strong demand for Range Rover, Range Rover Sport, and Defender.
• Anticipated demand uptick in second half, particularly in North America, Middle East, and China.
• Favorable raw material costs expected in second half.
• Guidance review in three months, aiming to sustain strong performance and execute strategy flawlessly.

Other Updates:

• Tata Motors Finance returns to profitability, focus on NIMs, reducing credit losses, and cost control.
• Capex on track for Rs. 8,000 crores.
• Positive credit ratings trend, ongoing engagement with agencies.
• IPO timing for Tata Technologies to be announced later.
• JLR tax rate at 26% with deferred tax asset.
• No obstacles to changing guidance, preference for more clarity on the year.
• Transition to BS6 Phase 2 complete, focus on delivering value and restoring market share.
• Ongoing cash management and net debt reduction plans.
• Tata Motors and JLR not investing in Agratas battery plant, but serve as anchor customers.

Risk

There's a possibility of volume growth progressing at a slower pace than anticipated across Indian Commercial Vehicles (CV), Passenger Vehicles (PV), and Jaguar Land Rover (JLR)..

Valuation and Outlook:

1. Tata Motors' commitment to achieving record profitability and robust cash flow generation at Jaguar Land Rover (JLR) for FY24E.
2. Additionally, their strong determination to achieve a net debt-free status in the automotive segment by FY25E is a noteworthy factor.