I was going through company’s annual report and came across their Debt section
Company has raised 1.35 billion dollars at an average coupon rate of 6.8-6.9%. Isn’t it very high in the current low interest rate scenario situation. Also, why is company raising such huge amount of debts when they are cash positive and planning to be Net cash positive in next threee years?
Anyone noticed the sudden spike in DVR today. As i write this DVR is up 11% as against 1.36% for the normal fully paid shares of company. The DVR discount is now below 50%.
Edit: The last one hour volume is more than 10M shares and my inference is that market is getting ready for an event resulting in price convergence of DVR with that of the normal shares.
AJ
Disclosure: Invested
Auto sector boost for electric vehicles and this should be positive for Tata Motors.
I believe the main reason for the discount on the DVR is dividends. The stock should rerate as soon as the Dividends are paid.
Given the fall of China’s biggest Real estate company, there is an expectation of steep fall in steel prices (Iron ore prices are already down). Wouldn’t it be helpful for Tata motors in improving margins although company may lose some China sales due to the slowdown in that market?
Let us be cautious with the words we choose, it’s not given that China’s Evergrande will default, they haven’t yet defaulted on the debt payment scheduled for 23rd Sept.
Yes, but if they do fall, commodity prices would too follow the queue, with those commodities affected the most that China imports a lot!
In terms of Indian companies affected the most would be
Tata Motors Group global wholesales at 2,51,689 in Q2 FY22
The Tata Motors Group global wholesales in Q2 FY22, including Jaguar Land Rover, were at 2,51,689 nos., higher by 24%, as compared to Q2 FY21.
Global wholesales of all Tata Motors’ commercial vehicles and Tata Daewoo range in Q2 FY22 were at 89,055 nos., higher by 57%, over Q2 FY21.
Global wholesales of all passenger vehicles in Q2 FY22 were at 1,62,634 nos., higher by 11% as compared to Q2 FY21.
Global wholesales for Jaguar Land Rover were 78,251 vehicles (**JLR number for Q2 FY22 includes CJLR volumes of 14,219 units). Jaguar wholesales for the quarter were 13,944 vehicles, while Land Rover wholesales for the quarter were 64,307 vehicles.
If Indian PV + electric business is $9 Billion
CV business is another $11 billion
JLR Business is $20 Billion
Total EV is $40 billion nearly equal to current EV …
Mind you BMW market cap is just $49 b Euros
According to the official statement, only TATA EV Co’s Valuation is at 9.1 Billion dollars - 68,250 crore rupees.
Passenger Vehicle’s Valuation and Jaguar and Land Rover valuation is not included.
How do you see total current EV at 40 billion? It’s 148 k croes, so 20 billions only. Am I reading something wrong?
Great company presentation Tata Motors Passenger Electric Vehicles Business
While computing EV you have to consider debt also
Hi Shailesh,
Thank you for explaining it to me 
In that case, as Tata motors is talking about being Net debt free by 2025, that means the Market cap can virtually catch up with EV by that time (if they are able to take off that much debt from the BS), right??
You are right … If they become net debt free that will add to market cap , but at the same time if debt increases you should subtract the same from market cap .
This year debt will increase by Rs 15000 to Rs 20000 crores . unless JLR does major turnaround by Year around
The key problem is underinvestment in JLR in terms new models - You need to invest now to build models post 2025 … Last 2 years have been wash out there .
BMW plans to invest 30 billion Euros in R&D for electric cars - JLR will have done at least 30% of it to be even relevant …
Discl : Invested in Tata Motors DVR . Selling partially ( plan is sell upto 30%of holding ) by Dec 2021
This is my analysis on Tata Motors :
TATA MOTORS
Tata motors today = JLR+TML+TMF (Tata motors finance)
80% of Revenue comes from JLR, 12% from Commercial Vehicle and 6% from
Passenger Vehicles. Rest from TMF.
KEY PERSONS
Jaguar - Mr. Thierry Bollore (CEO)
Passenger and Electric Vehicle Business- Mr. Shailesh Chandra (President)
PB = 3.3
Mcap = 1.6 Lac Cr
MARKET SHARE % = 13.84%
Concall Highlights (12th Oct 2021)
In the past few years, the industry has been growing at the rate of 1.5x to 2x every year
since FY17 and this year we are expecting the industry to grow by 2.5x to 2.7x.
Reasons: 1. Favorable govt incentives 2. Launch of better EVs 3. Hike in prices of ICE
vehicle along with fuel prices
We started with a 11% market share in FY18 and now it’s 71% which is still limited due
to supplies
There is a very steep increase that we are seeing in the demand, but we are fast trying to
ramp up and catch up on the supply side versus the demand
Demand drivers that we see is one, the stringent emission norms from 2022 April, we are
going to see the introduction of CAFE which will drive all the OEMs move towards
electric vehicles to offset the emissions coming out of the ICE, so that itself will create
some push factor
We have planned for introducing 10 electric vehicles by FY26 in the next 5 years which
would be in different body styles, in different price points from affordable EVs to EVs with
higher range, more sophisticated technologies and on the sales and marketing side, we
are also going to increase the micro markets where we are present today as you saw that
today we are present in 60 cities, but we will continue to expand every year into more
cities, also as we are introducing more electric vehicles and different models.
We are coming with more options to access the EVs through subscription model which
will allow those customers who are still vary to adopt the new technology an option to go
for a 12-month or a 24-month subscription
Subsidiarization of the PV business is confirmed by 1st of January next year, that
will be fully operational and that is done with a focus to actually to ensure that we are
able to drive a differentiated focus between CV and PV
PV strategy is to win sustainably and with that in mind we had called out in our investor
day as well that we definitely want to go after a double-digit market share which we are
happy to confirm, we are there, high single digit EBITDA, which is still a journey, we are
progressing well and we want to be FCF positive by FY23 which again we are progressing
well.
EV will require at least to begin up investments, 16,000 crores plus kind of investments
will be needed over the next 5 years and PV will definitely be fund constrained to support
this aggressive EV aspirations
Helios is the project name for this transaction. First, create a pure play EV company to
focus on passenger mobility. This will be created as an asset light subsidiary of Tata
Motors, will house all the dedicated EV talent and design capabilities of TML and we will
really aim to attract top notch global talent into this particular company
We will want to leverage the existing PV assets and investments to drive efficiencies as
well as drive speed to market because this we need to ensure that we stay ahead of the
curve on this one and the PV company will therefore be a toll manufacturer, we will
provide all the services to EV company to make it stand up on its feet
PVCo will become a 100% subsidiary of Tata Motors in January 1st 2022.
EVCo, the new company, we have not yet named it, will focus squarely on the future EV
products, will build and own the future IPs of EV and we will also catalyze the creation of
the charging infrastructure in the country
External investors will take 11% to 15% in the Company and we have Tata Motors Listed
Company having the ownership of 85-89% in this company
TPG Rise Climate which is a new fund of TPG Rise will be investing a billion dollar at a
valuation of up to 9.1 billion
It is $1 billion equity funding, where TPG Rise with a commitment of Rs. 7500 crores, $1
billion. 50% of this will come by March 22 subject to post conditions being met and also
post set up of the EV company, one of the conditions prevalent as well and the balance
50% will come by Q3 FY22 on achieving Go-Live actions
For Tata Motors, we have specifically taken a target of penetration of 20% plus with the
10 products that we are planning to launch in the next 5 years
Revenues in the region of about Rs. 500-600 crores and we aim to hit an EBITDA
breakeven in this business next year
What is actually happening is a full access to the full PV ecosystem in terms of factories, in
terms of sales points, management bandwidth, design, all that is going out, their brand,
name plate, everything, so therefore we are actually wanting to use everything that has
happened in Tata Motors and gives EV its full support to ensure that it is able to take off.
EV valuations globally work on a different logic and we had Morgan Stanley and JP
Morgan as our advisors and we had put the overall business plan in front of them and of
course there was a view in terms of what could be the kind of valuation that is there, so
comparable multiples have been used. It is comparable with East Asian peers.
Next 5 years, I already answered this question a while back. From an industry
perspective, the EV industry in India is expected to be in the early double-digit
penetration as what we expect. From a Tata Motors perspective, we are aspiring to be
20% plus
Total investment in EVCo = Rs 16000 Cr
As far as batteries are concerned, right now, we have already localized the backend
module in India and this is being supplied to us by TACO. Going forward, as far as cell
manufacturing is concerned, it is something also which is under consideration by the Tata
Group and that decision will be taken
Even if subsidy goes away in the next 2 to 3 years, it should not impact because by that
time, the cost structure would have come down significantly
No asset, no liability moves from Tata Motors PVCo into EVCo, it is an asset light company
Comments:
DECODING THE VALUATION
The analysis shall be based on TPG investment of 1B$ for the stake of 11-15%
which brings the valuation of 9B$ which comes approx . INR 67500 Cr.
Some Facts and Figures
EV Car sales in 2021 = 4% of total car sales in numbers
In terms of Revenue = 3.75%
Let’s say 4 % which is 1/25th of total PV sales.
Now TPG is valuing this 4% segment, as of now, to Rs 67,500 Cr.
Whereas Total MCap of Tata motors (100%) is just 1,60,000 C r which includes
EV+PV(with brand lik e Jaguar)+ CV!
Comments :Huge Valuation gap considering the fact that Jaguar ’s revenue = 80% of total
revenue
Now by 2025, EV = 20% of total PV sales (as per Tata motors target)
P/B of TM = 3.3
Whereas P/B of Maruti = 4.5 with no EV plans by 2025
PE of Maruti = 50 with decreasing car sales and no futuristic plans
Now by 2025, TM EV’s MCAP will be = 5 times current Mcap = Rs 3,37,500 Cr (as per their target)
PV+CV in 2025 = 2 times current value = Rs 3,20,000 Cr (growing at normal rates)
Total Mcap = 6,57,500 Cr
Which means it shall be 4 times appox. in 5 years in earnings and assuming Tata motors
meet most of its targets, its PE re-rating will be definitely on cards to at least double of current
or say past value which makes total M cap = 8 times of current value.
This is the min. value as per Indian market and if in future Tata Motors EVs compete with the
likes of Tesla then PE of 100+ is also reachable easily making its value 16 times of current
value. Needless to tell that EV industry itself will be at least 10-20 times by 2025.
This is with assumption that TM will not take any significant market share from the market leader
which may happen looking the recent trends and hence it can take a huge chunk from Maruti
in future.
Charts and figures attached in my analysis as attached here:
TM Valuation.pdf (1.1 MB)
Disc: Invested
Nicely written… I want to call upon the point that EV sales will be at the cost of ICE sales so normal growth in PV may not be viable. Is there any way to discount that in your valuation model?
You are right that it will simply replace ICE models but that is the game changer as Tata motors sales in ICE was in single digit till last year and this year only they touched double digit but in EV space they will be the market leader due to a lot of factors like Early entry+ R&D, Whole ecosystem leading better pricing and very experienced partner TPG - All of these factors will lead to very high market share (Right now it’s 71%).
On the other hand Maruti has firmly confirmed that they have no plan for EV till 2025 and other manufacturers can’t compete with Tata motors in pricing. Even if EV penetration reaches 20-30%, it will change the game and needless to say that in ICE segment also, market share is getting shifted.
Any more feedback/queries are welcome
