The comparison to BMW and Daimler seems interesting. The below video also discusses the same report.
I guess market did not like planned JLR capex. Indian markets lacks respect for innovation and futuristic ideas. Imagine listing of Tesla here. It took years to recognize Biocon’s pipeline.
This is the cause.
My assumption was since Saudi has allowed female drivers, there could be more sales of cars, demand in oil etc, but this huge capex of 1.2 lakh crore and Trump threats discounts everything i believe.
But company already having excess debt and business also not doing well. On top of that 1.2 lakh crores cap ex. Isn’t it one more burden on already struggling financials. Cap ex may show fruits in future but in short term it seems more pain is coming. I wont be surprised if it goes below 250 levels.
In my opinion, capital expenditure at this stage isn’t prudent. Post the 2009 meltdown, economies around the world have grown healthily. However, we may be very close to a global slowdown. A straightforward reason could be conclusion of quantitative easing. Like most aspects of life, after every period of rapid growth there has to be a sluggish period. When the economy slows down, it’s amply clear that car sales would be lethargic. And, leverage along with economic slowdown is a lethal combination. Tata Motors’ is an indebted organization.More debt will only cause more troubles.
That is not how Tata group was built and operated. They have vision which runs into decades.
There will be huge disruption with EV. JLR is very well positioned as it is much smaller and hence less baggage. With iPace they have shown what they are capable of.
Management has eminent people who in turn have access to best technocrats and strategists. Let us not second guess their wisdom.
Many thanks for your response. I’m in agreement with you that the Tata group possesses the finest quality of human resources. There’s not an iota of doubt about it. But, at the end of the day, no one is infallible. Their Corus acquisition left a lot to be desired. While their JLR acquisition is remarkably successful. So, it’s exceedingly difficult, if not impossible to estimate the likelihood of a business venture’s success. There are just too many moving parts involved.
I read one Buffet quote long time back.
When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
If we go by this , Financials are not v good , business not doing good , JLR struggling , Domestic business share is v low , Margins down and high debt compared to peers. Only thing I like good here is TATA’s name.
Though I have taken a tracking position around 290 (due to more than 50% correction from top highs) and will wait for 230-240 levels to add more (as I can see some margin of safety at those levels).
Yes, it is leap of faith into unknown. That is how great companies get to next level especially in technology world. How many investors would have supported Amazon becoming a cloud company from retail with billions of dollars of investment. Look how Tesla management is ignoring investors call for curbing investments. Same was case with Biocon, tremendous pressure to curb R&D expenses from short term oriented investors who did not understand biz well.
They have a very good network, especially in India.
They have a good brand name.
They have very good tech guys after takeover of JLR.
They have the best management heads including Mr. Chandra.
All they required was innovation and more products which can compete with Germans and Japan.
I dont C why they cannot aim for next Maruti in EV.
Remember Rome was not built in one day.
One may have to wait for sometime to reap the benefits.
Want to own DVR below 165.
Watch what Valuation guru - Aswath Damodaran - has to say about the Automobile sector:
(Watch 3 minutes from 30:00)
Enjoyed the video.
Notes from video:
Automobile business - one of 10 worst businesses to be in
Revenue growth: 5.x% low marginal growth (demand from China)
Abysmal operating margin (bad margins)
Lots of reinvestment in R&D
ROE less than cost of capital
Exception: Ferrari (not exactly a car - its a exclusive dream)
-sold 7265 cars, operating margin: 18.2%, (median : 4.6%), no traditional advertising
Don’t tell me a Game Of Thrones story about it, tell me how you make money?
Uber - urban car service company with local networking benefits
Auto business enjoyed search/ tech ( google ) business like status in US in 1950s & 60s , it enjoyed similar status in Japan in 1970s - 1980s , in Korea in 1990s in China in 2000s. The crux point is when countries domestic markets grows to a threshold level , its international mind share also grows .
Now ++ ADD to this - Tata & Mahindra have unique adv vis a vis other global auto players - They own steel ( tata ) , auto ancilliaries + defence + large B2B software services arms which are working on latest Auto technologies . Additionally there market share is so low they are challengers rather than incumbent … That is how they aggressively moved to EV instead of opposing the change …
It will be interesting how all this will unfold …
Leave behind Corus, take the example of Nano, from the day#1 everyone knew it was a failure. They pursued it just bcoz it was Chairman’s pet project. Where is promoters integrity,efficacy n enrichment of stakeholders equity.We can go on length but eod everyone wanna result,without which No one will value on par leave behind valuing u at premium. We are quoting at less than 1 wrt mktcap/sales even then no one is ready to buy us.
Have high hopes on current mgmt n ipace, if something goes wrong then v VL b in bottomless pit. Fingers crossed.
Agree. But the quantum is what is concerning. I recall the numbers that JLR talked about until few months back were much smaller and they had already committedt o move their entire portfolio to EV by 2022.
Employees stock option is based on last six month prices … Lower the prices higher the gain …
Agree that quantum of investment is higher but JLR is seeking to become a larger player and compete with Tesla, BMW and Audi.
There are a very few companies based out of India who have forgone near term profits to become a global player. And I like what they are trying to do. ( Biocon was another one in last decade. )
I liked the aggression which they displayed to beat Mahindra to win govt EV contract and deliver first set of EV already.
We can not judge current leap of faith with traditional valuation parameters for next 4-5 years as it will be evolution phase of company.
Discl: Invested and TAMO forms a big part of my portfolio. Currently evaluating whether to sell & book losses or hold on to it for long term.