Tata Motors - DVR

Here is a latest report from Prabhudas Liladhar. Stock has fallen to 263 … I will buy once i see some reversal …

Disclosure : Not yet invested. Tracking.

There is certainly patience testing going on for long term share holders. People were discarding TATASTEEL same way 2-3 years long back and every tom-dick-harry was giving 150-200 price target.

The company has had an enormous amount of bad luck over the last 2 years, pretty much perfect storm stuff, some were avoidable but only to an extent.

a) Brexit
b) The bad Pound hedge
c) Explosion at port in China (insurance I assume covers cost not profit)
d) The entire Euro 4 mess in India
e) Diesel engine pollution controversies

While there are bad management calls like Nano and taking eyes off the local CV & PV market while JLR was raking in the bucks, if not for the above issues, things would be looking much better today. Personally I feel a balancing of past bad luck aside there are a few big medium term triggers kicking in over next 1-2 years.

a) Turnaround in domestic cycle which is very visible in both PV & CV segment. Admittedly domestic is now the tail to JLR’s dog but impact will still be meaningful.
b) Slovakia plant starting end of year - cost of production will be much lower and access to Europe will be there if Brexit negotiations don’t go well.
c) Great initial reports of I-Pace, while contribution to financials may be middling , impact on valuations and outlook can be very different. Look at Tesla’s valuations - I’m Elon Musk’s biggest fanboy but I just don’t understand those.
d) Rationalization of subsidiaries will without much effort have a decent impact on RoCE.
e) Most importantly I am much more upbeat on the new management team, a lot of problems on the local side were on account of a lets say laidback management. The new Chairman, CEO & CFO are much better quality. Have briefly worked with Balaji and he is one of the sharpest guys I have known. Gives much more confidence for future outlook, given a lot of their problems stem from bad capital management.

Valuations give a lot of comfort, I mean one can try to time the bottom but seriously how much downside can there be from 270 levels? The stock has a bloody book value of 234. The stock has tested one’s patience but I see reason for hope from here on.

Disc - invested

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At the outset, I’d like to mention that my assessment isn’t based on extensive research. If it’s erroneous please excuse me.
When I think of automobile companies Hyundai is a prominent name in my mind.
It’s valued at approximately 33 billion dollars. It generated sales of around 94 billion dollars and profits of 4.28 billion dollars. It trades at an earnings multiple of approximately 8.
Net profit margins were 4.55%. Most automobile companies in the world have margins ranging from 4-7%.

In the case of Tata Motors, assuming a liberal margin of 6% would generate a net profit of around 16000 crores.
Ascribing a multiple of 7 would lead us to a valuation of 1.2 lakh crores.
A substantial upside from current levels. Frankly, I don’t see margins expanding beyond 6%. There sure could be some headwinds. And, the company leadership is indeed remarkable. But, if the economy itself struggles there’s nothing even the best manager can do.

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Is he talking about Cars or all automotive sectors?

I think Biocon story is yet to unfold whether they create value or not. I do hold biocon but getting less conviced about the story with each passing day.

For Tata Motors/ JLR - Directional approach is not in question. They must invest in EV. But are they doing enough to sweat their cash cows and generate funds… Personally I like the new developments with India business also looking better but it’s a long way to go from the holes they dug such as Nano.

You forgot to add Mayank Pareek. Things started looking bright post poaching him from MSIL. That’s very aggressive move.

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https://www.bloombergquint.com/business/2018/07/01/auto-sales-live-maruti-suzuki-sales-jump-36-on-compact-vehicles

Passenger Vehicles domestic sales in June 2018 has registered an impressive performance with 18,213 units, a growth of 63%, over last year.

Looking at the CV numbers just not from TaMo, but M&M n eicher n ALL too that too since a quarter r so, looks like economy is picking up. If that is d case, bull isn’t going to give up.

Brexit taking toll on JLR outlook.
https://www.bloombergquint.com/business/2018/07/04/jaguar-land-rover-warns-u-k-of-106-billion-bad-brexit-toll

One theory of investment says, if it doesn’t work out for u in first 3 years, it’s better to do a blank sell instead of latching on to it forever. In May it was 3 n now in June it’s just 1. What else do u need to stop the production of NaNo. Y is domestic Mgmt so blindly in love with it. Be rational n take hard call on it n send a positive aura to the investor community. It’s better founders take a step behind n let the rationality sink in. You have more gruesome problems which needs attention than this sinking hole. Any layman can understand it, y not the mgmt. Feels like they are taking investor for Granted. V should move privilege motion seeking their answer if it’s possible.

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Re-looking at TaMo in terms of evolving positives and negatives. Comments welcome -

Positives -

  1. I-pace continues to get rave reviews. And for once Jag seems to know what it takes to do path breaking marketing (what they did with journalists in Portugal)
  2. India business is rolling on - passenger, MH&CV , ICV and SCV - all did over 30% yty growth. On passenger, TaMo is now 3rd largest surpassing Mahindra
  3. Tiago , Nexon seems to be sustaining moment. The new H5X is likely to be launched soon.
  4. UK diesel worries are dissipating now.
  5. China import duties relaxation [ may be a positive or negative depending on how you see but TaMo seems happy]
  6. All time high sales in US

Negatives -

  1. US trade issue - if it happens could be disastrous
  2. Similarly Brexit could impact heavily until European plant is commissioned
  3. Investment quantum
  4. I-Pace sales a big big if and to me the biggest deciding factor. And E-pace and F-type are now faltering

Net net - I’m still in two minds on this one. The valuation gives comfort but upside is hinged the negatives not playing out.

Disc - Invested many years ago and recently added heavily.

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Had similar dilemma. But look at the fact that TAMO mcap is lower than Bajaj auto. Now fast forward a decade into developed India. TAMO products would still remain relevant but can Bajaj auto remain relevant unless it metaphors into completely different entity. I guess market is too concerned with near term uncertainty.

It’s like comparing apples to oranges. Bajaj is not taking on such high capital risk as TELCO. Fast forward 10 years and why do you think Bajaj products will not be relevant?

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I don’t see such a large listed 2 wheeler company in Europe/US market. Harley is only I am aware of with mcap of only 7B USD.

I saw this on Car dekho website. Tata E vision luxury sedan is expected to launch in Sep 19. Car looks awesome and can run 300 kms in one charge. If it comes similar to as shown in picture. It can be a v good revenue generator for TATA motors. Price also looks good around 25 lakhs.

Disc : Invested recently.

Do you see a population density of 30k per square km in those countries? It is true in India!
The per capital income along with population density makes India unique. You won’t see this in US or EU.

Agree and that calls for commuter bikes and scooters. Heromotor is well placed. Not sure there will enough play for premium bikes Bajaj is trying to make. In 3 wheelers market, players like M&M are better positioned with Electric offerings.

If TaMo has marketed Nano as replacement to 3 wheelers as Bajaj doing with Qute, I don’t think Ragan’s pet project would have ever failed. When you start contemplating about a product, the collective effort of innovation,pricing, efficient,segment catering, marketing make it a click rather than just pricing. We need to learn from our mistakes and book out the loss so that we don’t miss out the opportunity cost of money.
As vijay said it’s like comparing Apples with Oranges.
Frankly speaking, I give thumbs up to Bajaj looking at the debt, NPM, Niche offering n expanding in that either via KTM, Triumph,Husqvarna. Just like what outsourcing did to IT, if it does for these super bikes, we might see end of road for RE.
We can go on for years arguing about each other strategies without any conclusions but both brands will evolve and grow on their own in the foreseeable future.

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Interesting debate …

For bajaj - There are two big themes -

  1. Upgrading traditional 3 wheeler market to QUTE ( quadricycles ) - Huge market across India , South Asia & Africa

  2. Capturing multiple layers of Premium cult like motorcycle market ( which will not lose out aggregators or cars unlike Hero moto ) - Pulsar / Avenger / KTM / Triumph etc. It might buy out more brands … This is like low cost JLR for Bajaj Auto

For Tata Motors - Reinvention is big game

  1. Shift from IC engine to electric / autonomous in CV and cars
  2. Ensuring that apple / google don’t do to cars what they did to phone , watches and computer market.

Market opportunity for Tata motors is BIG , but competition is also big … Also the risk of losing value in value chain is higher for premium cars vis a vis premium Motor cycles

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