Tata Motors

JLR will not compromise on product and technology investments – Tata Motors

Update on the Indian Equity Market:

On Tuesday, Nifty closed 0.3% higher at 13,393. Within NIFTY50, ULTRACEMCO (+3.1%), TCS (+2.1%), and RELIANCE (+1.8%) were the top gainers, while HINDALCO (-2.3%), SUNPHARMA (-2.2%), and COALINDIA (-1.8%) were the top losing stocks. Among the sectoral indices, PSU BANK (+7.1%), REALTY (+0.8%) and IT (+0.8%) were the top gainers while METAL (-1.2%), PHARMA (-1.2%), and MEDIA (-0.9%) were the top losing sectors.

Excerpts of an interview with Mr. PB Balaji, Group CFO, Tata Motors, aired on CNBC-TV18 on 7th December 2020
● Management has consciously called out that turning free cash flow positive is a key objective of the business.
● Both JLR and TML will be free cash flow positive in 2HFY21E. The India PV business will turn positive from FY23E. The management is confident of delivering on these targets.
● JLR turnover was well underway before the Covid-19 disruption. Due to Covid-19, JLR has accelerated plans that were already in place.
● Turnaround of JLR depends on 3 verticals: 1) Focus on how to use the products that have been launched to their maximum limit, 2) China geography turnaround, and 3) Cost and cash savings as part of the Charge+ program. As these 3 factors come together, JLR will turn free cash positive and that will ensure deleverage.
● Land Rover has been doing better than Jaguar. Land Rover also generates most of the profits currently. Turnaround and sustainability of cash flows of Jaguar is part of the overall medium-long term JLR turnaround plan.
● On the Indian PV side, the New forever range launched by TML in February 2020 has been successful in generating demand traction. Overall, the industry is seeing a demand resurgence in PV led to a need for a safe commute. Post-Diwali this year there hasn’t been a serious decline in sales which is what happens normally. Order books are at all-time highs.
● The Indian CV business is also seeing sequential recovery, although slower than PV. Recovery came earlier in SCVs and ILCVs.
● MHCVs are also doing better in the last 1.5 months. Financing has opened up for MHCVs which is helping sales. With the economy slowly starting, there is a pick-up in cargo movements.
● One segment that is not performing well at all is the Passenger carriers (buses) segment due to schools being shut and most offices working from home.
● JLR has slashed FY21E capex plans to GBP 2.5 bn. But JLR will not compromise on product and technology investments. The capex cut is in tune reflecting the decline in the demand scenario. Some products whose business case was not strong enough have been put on pause.
● Every JLR product will have an electrification option by early FY22E. The electrification journey is well underway and is not stopping here.
● Additionally, Tata Motors is looking for partnerships – be in JLR or TML – to ensure capital productivity.
● JLR margins went up to 11.1% in 2QFY21 on the back of Charge+ cash savings. Management expects further improvement in profitability and cash flows in 2HFY21E. As volumes increase, initiatives made on the costs, especially material costs, will get reflected more.

Consensus Estimate (Source: market screener website)
● The closing price of TATAMOTORS was ₹ 182 as of 8-December-2020. It traded at 18 x/ 9x the consensus EPS estimate of ₹ 10.4/19.9 for FY22E/ FY23E respectively.
● The consensus target price of ₹ 148/- implies a PE multiple of 8x on FY23E EPS of ₹19.9/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

We have increased market share, exceeded pre-Covid levels – Tata Motors

Update on the Indian Equity Market:
On Thursday, NIFTY was down 326 pts (-2.9%) at 10,806.
Among the sectoral indices, METAL (-4.2%), IT (-4.2%), and PSU BANK (-3.9%) were the top losers and there were no gainers.
Among the stocks, INFRATEL (+2.9%), ZEEL (+0.9%), and HUL (+0.3%) were the top gainers. INDUSINDBK (-7.5%), TATAMOTORS (-6.6%), and BAJFINANCE (-6.6%) were the top losers.

We have increased market share, exceeded pre-Covid levels – Tata Motors

Edited excerpts of an interview with Mr. Vivek Srivatsa, Head, Marketing – Passenger Cars, Tata Motors with The Hindu dated 12th September 2020:

‘Onam has performed very well overall for the industry and particularly for us at Tata Motors.’
We had pretty robust growth both in terms of first-time car buyers from smaller towns but also upgraders and probably people getting their second car into the household in the bigger towns, says Mr. Vivek Srivatsa, Tata Motors.

• When asked about the targets for festive season he informed that fortunately ever since the unlock has begun around the middle of June, there has been a consistent increase in demand for passenger cars and it has sustained pretty well through the last four months. The first indicator of festival season is how Onam performs. It has traditionally been the first festival across the country and this year Onam has performed very well overall for the industry and particularly for Tata Motors.
• Tata Motors had sustained demand across all five products. It launched a completely new range of five BS-VI ready products in January and fortunately have demand for all five so much so that most of the production is being lapped up. Considering the farmers community has been blessed with a good monsoon, agricultural production seems to be going really strong, the harvest season is performing well. Now on the back of these factors, he is expecting a fairly good festival season.
• His comments on current dealer inventory levels in the channel and timely delivery: For Tata Motors, dealership inventory is a shade below what the company would like it to be at an ideal level. Company is trying to ramp up production and take care of their bookings. As a result, customers are having to wait a little longer than they would like. All three plants are accelerating the factory forward kind of transportation to the dealers as much as possible, getting into daily work management to produce and dispatch the cars as early as possible.
• Tata Motors is ramping up processes and operations to ensure that customers get the deliveries on their favored time in terms of auspicious days or in terms of specific days they would like to get it. Tata Motors have a pretty good mechanism of informing the expected date of delivery at our dealerships. Customers are informed well in advance of when they can expect their cars.
• When asked which are the key geographies they are focusing on and demand scenario from metros, tier I, tier II and rural areas he replied that traction seems to be pretty consistent across both tier I, tier II and smaller markets. The good indicator would be Kerala with Onam as a base case. Pretty robust growth was seen both in terms of first-time car buyers from smaller towns but also upgraders and probably people getting their second car into the household in the bigger towns. Tata Motors have a fairly spread product range right from hatchback which traditionally is called the entry hatch and Tiago going up to a mid-SUV of the Harrier, a pretty wide price band. It would not be an accurate parameter to gouge where the demand is coming from. But looking at the flow of bookings, demand is fairly uniform across the different town classes.
• However, in terms of offers, company have made a slight differentiation between a bigger town and a smaller town. It was seen that post the pandemic, there has been a huge demand uptick for personal transportation owing to the safety that is involved and by and large people are looking at ease of entry into car ownership and hence marketing has largely revolved around two areas. One is to assure the customers that it is very safe to actually visit showrooms and experience test drives. Second, in terms of ownership, company’s focus has been largely on making ownership accessible and very aggressive EMI offers, finance options, ease of finance availability have been the focus.
• When asked about sales reaching pre covid levels he stated that overall, industry is on par with pre-Covid levels but specifically for Tata Motors, they are happy that they have exceeded pre-Covid levels. This is quite visible by company’s market share increase. Tata Motors have grown their market share substantially compared to pre-Covid levels. Demand is continuing to be strong and it is to some extent, exceeding supply in the ensuing period. In terms of customer behavior, there’s quite a lot of change. There is increased focus on safety. Most of cars are four star or five stars rated in the global end cap rating scale. Customers have really shown preference for their range right from Tiago, Tigor, compact SUV the Nexon as well as latest premium hatch the Altroz.
• He said that the other area of difference being that he sees a lot of family involvement in car purchase now and hence the design appeal is becoming stronger. It is more of a unified purchase decision today than it was earlier and inputs from women are higher than ever and hence we see a strong orientation towards appealing design and also comfort features are coming very strongly to the fore. Premium Altroz is hugely lagged because of the 90-degree opening doors that it provides and the flat floor. These are features that customers are quite fascinated by. So, there is a slight change in customer behaviour with far more orientation towards safety and design.

Consensus Estimate: (Source: market screener website)

• The closing price of TATAMOTORS was ₹ 123/- as of 24-Sep-2020. It traded at 14x/7x the consensus EPS estimate of ₹ 9.4/18.4 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 129/- implies a PE multiple of 7x on FY23E EPS of ₹ 18.4/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Reducing non-core debt to pare debt: Tata Motors

Update on the Indian Equity Market:

After a week-long rally, investors booked profits which led to a fall of 52 points in Nifty to close at 12,087. This follows the weak Asian markets following the rising death toll from a virus spreading from China. Apart from result season, there was no major catalyst to move the markets on Friday. Within the sectoral indices, Media (1.7%), Pharma (0.6%) and IT (0.5%) closed the day higher while REALTY (-1.8%), AUTO (-1.0%) and PVT BANKS (-0.5%) were the highest losers. Among the index stocks, ZEEL (5.5%), NTPC (3.2%) and COALINDIA (2.8%) led the gainers whereas EICHERMOT (-3.1%), TATAMOTORS (-3.0%) and INDUSINDBK (-2.7%) brought the index lower.

Reducing non-core debt to pare debt: Tata Motors

Excerpts from an interview with Mr Guenter Butschek, MD & CEO – Tata Motors published in Livemint on 7th February 2020.

  • Mr Butschek said that the company has invested sufficiently in its product library that includes common vehicle architectures, powertrains, transmissions, and other shared technologies to reduce overall product development cost.
  • He is confident that in the coming two years, the company will see strong growth as far as modularity is concerned across commercial and passenger vehicles. He said that the company has done homework on its turnaround plans, investing in new technology platforms such as CESS (connected, electric, shared and safe mobility) and tapping into the Tata Group companies’ strengths to build an electric vehicle (EV) ecosystem.
  • Referring to the company’s efforts to strengthen its financials, he said Tata Motors has turned cash accretive despite the collapse of the medium and heavy commercial vehicle (MHCV) segment, which contributes 47% of total commercial vehicle revenue that accounts for 65% of total domestic revenue.
  • The product portfolio of company is much better than what it was when the economic slowdown began two years ago. He is confident that once the economy revives, the significantly upgraded products would do much better in terms of cost-based contribution to company’s margin base.
  • Butschek said that customers would take a while to absorb the higher cost of purchases under BS-VI emission norms, which would entail a product price increase of 10-15%.
  • The company had ₹ 233,365 mn worth of debt in its India business as of 30th September 2019. The consolidated debt including Jaguar Land Rover (JLR) stood at ₹954,650 mn. He said that the company is planning to reduce non-core assets to reduce the debt.
  • The company is focusing on reducing costs, including material costs and working to enhance productivity.
  • As part of its turnaround plan, Tata Motors plans to launch 12-14 passenger vehicles over the next three to five years, besides at least four new electric vehicles over the next 18-24 months.

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Motors was ₹5/- as of 07-February-2020. It traded at 109x/ 11x/ 7x the consensus earnings estimate of ₹1.6/ 15.4/ 24.7 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price of ₹ 201 /- implies a PE multiple of 8x on FY22E EPS of ₹ 24.7 /-

Tata Motors shifts focus to cars on weak demand for CVs

Update on the Indian Equity Market:

On Friday, NIFTY closed at 12,257 (+0.3% higher than the previous close). Among the stocks, Coal India (+3.3%), Infosys (+1.7%) and Ultratech Cement (+1.6%) were the gainers. Yes Bank (-5.0%), Zee Entertainment (-3.5%), and Indusind Bank (-1.2%) were the top losing stocks. Nifty Realty (+1.8%), Nifty Metal (+1.2%) and Nifty Auto (+0.8%) were the top sectoral gainers while Nifty Pvt Bank (-0.1%) was the only sectoral loser.

Excerpts from an interview with Mr Guenter Butschek, MD & CEO, Tata Motors Ltd published in Livemint on 10th January 2020:

  • Tata Motors Ltd (TML) is betting big on passenger vehicles (PVs) to lead its turnaround plans as it transitions to Bharat Stage-VI emission norms. The move to BS-VI will give the company ‘a much more powerful play’ in the domestic market during the next fiscal.
  • With the new range of products, including upgrades for BS-VI, Mr Butschek is confident that March 2020 would be the turning point. If this gets support from the tailwinds, TML will get back to the previous growth path.
  • Referring to TML’s new product pipeline, including the company’s ambitious electric vehicle plans, Mr Butschek said the company plans to unveil 26 products at next month’s Delhi Auto Expo in February, including the 14 new commercial and 12 new passenger vehicles. This would be the biggest display of new vehicles. TML also plan global unveils of four new vehicles.
  • Mr Butschek termed the transition to BS-VI as ‘the single biggest engineering and investment effort ever’ put in by TML. He said a team of 3,500 engineers worked on BS-VI projects, upgrading over 20 engine platforms, 100 lead vehicle models and 1,000 variants. TML invested more than ₹ 1,200 crore in FY19 and hired 500 additional engineers for the process.
  • According to him, TML’s turnaround story in PVs and CVs is inspiring in terms of cost reduction. The Company has been able to reduce their breakeven point during tough times which is clear proof that they have done their homework. They are done with their investments and now they need is the volumes.
  • One key step was to bring down product development costs in its common vehicle architecture, which would form the base for several upcoming models.
  • In PVs, it has developed flexible vehicle platforms, code-named Alpha and Omega, which would power up to 12-14 new nameplates in the near- to mid-term. The new premium hatchback Altroz is going to be the first model from its Alpha architecture. The two modular platforms will also power the range of electric cars planned by the Company.
  • Mr Butschek said that TML would remain cautiously optimistic while estimating that the market would recover by 2HFY21, once the BS-VI transition is behind.
  • TML is seeing marginal improvement in retails. While the market sales volumes were flat YoY in December, TML’s sees improvement in its performance comparing the previous months.
  • For CVs, revenue from which was over four times the revenue of PVs, Mr Butschek said absorption of excess freight-carrying capacity could take up to five years, thereby hampering demand from the truck fleet owners across the country. Introduced in July-August 2018, the new axle load norms raised the permissible gross vehicle weight (GVW) of over 16-ton heavy trucks by about 12-25%, thereby creating excess carrying capacity for fleet operators.
  • A good vehicle scrappage policy could help reviving the demand for CVs in the near term, said Butschek.

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Motors was ₹ 196/- as on 10-January-20. It traded at 25x/ 12x/ 8x the consensus EPS of ₹ 7.5 / 15.6 / 22.9 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 187.5/- which implies a PE multiple of 8x on FY22E EPS of ₹ 23/-