TATA MOTORS : SMOOTH ROAD AHEAD

The company not only offers a broad spectrum of vehicles that are customised for local conditions and meet the highest standards for quality, safety, environment norms and user comfort but its operational and financial performance has always stood the test of times and emerged victorious 

Tata Motors Group is a USD 35 billion organisation and a leading global automobile manufacturing company. It has a diversified portfolio of extensive range of cars, sports utility vehicles, trucks, buses and defence vehicles. Tata Motors also qualifies to be India’s largest OEM (original manufacturing equipment) company offering wide range of integrated, smart and e-mobility solutions. It is part of USD 113 billion Tata Group founded by Jamsetji Tata in 1868. Being India’s largest automobile manufacturer, it takes the lead in shaping the Indian commercial vehicle landscape. 

This includes leading edge powertrains and electric solutions packaged for power performances and user comfort at the lowest lifecycle costs. The company offers innovative mobility solutions which are in line with customers’ aspirations. It has identified six key mobility drivers that will lead it into the future, namely, modular architecture, complexity reduction in manufacturing, connected and autonomous vehicles, clean drivelines, shared mobility and low total cost of ownership. It has a sub-brand, TAMO, which is an incubating centre of innovation that will spark innovative mobility solutions through new technologies, business models and partnerships.

Tata Motors has a vast network of subsidiaries and associates, including Jaguar Land Rover in the UK and Tata Daewoo in South Korea. It established a first footprint internationally in 1961. Today it has 103 direct and indirect subsidiaries, 10 associate companies, three joint ventures and two joint operations spread across India and other countries. It strives to bring dreams to life by engineering the best in design, connectivity and safety. From sporty looks to sleek lines to bold accents, the company passionately creates machines that are stylish and attract right from the first look. It also works to enhance safety at an unmatched speed by ensuring drives supported by superior features both inside and outside a car. 

Along with the global business of Tata Motors with manufacturing operations in the UK, South Korea, Thailand, South Africa, Indonesia, Austria and Slovakia, its international presence has grown stronger through joint ventures like the strategic alliance with Fiat and Brazil-based Marcopolo. The company has a record 8.5 million vehicles plying globally – evidence of an extensive portfolio. It has a hefty presence in the hatchback and sedan segment up to SUVs and MUVs. Tata Motors offers a broad spectrum of vehicles that are customised for local conditions and meet the highest standards for quality, safety, environment norms and user comfort.

As of today, it has a presence in over 125 countries with a worldwide network comprising 8,400 touchpoints. The research and development centres of Tata Motors are in the UK, Italy, India and South Korea. Having such a wide global experience helps Tata Motors build up in-depth understanding of customer expectations from diverse markets, thus placing it in a good position to cater to the ever-changing automotive norms and consumer trends across the globe. It launched new products with cutting-edge technologies in the second quarter of FY21, including Signa 5525 with highest GCW of 55 tons. It has rolled out 3,00,000 Tiagos and 1,000 Nexon EV. Its 4825 TK qualifies as India’s largest tipper truck.

Sector Overview India became the fourth-largest automobile market in 2019 replacing Germany with about 3.99 million units sold in the passenger and commercial vehicle categories. It is expected to replace Japan by 2021. The two-wheeler segment dominates the market in terms of volume owing to a growing middle-class and a young population. The companies have also increased their interest in going deep into the rural markets to further lend a hand in the growth of the sector. India is also observed to be a strong automobile exporter and has good export growth expectations for the coming years.

Sector Overview

India became the fourth-largest automobile market in 2019 replacing Germany with about 3.99 million units sold in the passenger and commercial vehicle categories. It is expected to replace Japan by 2021. The two-wheeler segment dominates the market in terms of volume owing to a growing middle-class and a young population. The companies have also increased their interest in going deep into the rural markets to further lend a hand in the growth of the sector. India is also observed to be a strong automobile exporter and has good export growth expectations for the coming years.

According to the data released by Department for Promotion of Industry and Internal Trade (DPIIT), the automotive industry attracted foreign direct investment (FDI) of USD 24.53 billion between April 2000 and June 2020. The Indian automotive industry, including component manufacturing, is expected to reach Rs 16.16 – 18.18 trillion (USD 251.4 – 282.8 billion) by 2026. The Indian automobile sector is drawing a close parallel with the recovery trend of China as we come out of the lockdown and restrictions. Automobile manufacturers saw almost zero sales in April following stringent restrictions and almost all of them recorded 80 – 90 per cent dip in domestic sales in May.

However, the place of decline slowed in June and Maruti Suzuki and Hyundai Motors, which hand-in-hand command nearly 70 per cent market share, announced 53 per cent and 49 per cent decline in sales over June 2019. The recovery in the automobile sector has been month-on-month. So what is leading to recovery in India? The demand for compact small cars, prominently by first-time buyers, is driving car sales in India after the piled up demand due to stringent lockdown restrictions in April and May. While urban players were more impacted by the lockdown, it has been noted that rural players are showing speedier recovery.

The automobile industry has the backing of various factors such as availability of skilled labour at low cost, robust research and development centres and low-cost steel production. The industry is important as it accounts for over 7 per cent of the country’s GDP and 22 per cent of the manufacturing GDP. The industry supports more than 3.7 crore employment and also has GST collections of around Rs 1,50,000 crore, which accounts for nearly 15 per cent of the total GST collection of the country in a year.

Financial Overview

To take a look at Tata Motors’ financial and operational performance, in terms of its consolidated quarterly performance, net sales declined to Rs 53,530 crore in Q2FY21 as compared to Rs 65,431.95 crore in Q2FY20. Operating profit decreased 12.77 per cent from Rs 7,717.07 crore in Q2FY20 to Rs 6,731.52 crore in Q2FY21. The net profit of the quarter turned negative to Rs 343.28 as compared to a positive of Rs 175.76 in the same quarter in the previous year. On an annual basis, net sales were seen declining by 13.54 per cent from Rs 3,01,938.40 crore in FY19 to Rs 2,61,067.97crore in FY20 whereas the operating profit was seen dipping by 24.14 per cent in FY19 as compared to FY20.

The annual net profit was a negative Rs 10,975.23 crore in FY20 as compared to negative net profit of Rs 28,933.70 crore in FY19. The company’s debt profile showed that there was strong liquidity while the debt maturities will also spread out. The Jaguar Land Rover segment had an overall liquidity of GBP 5 billion and also additional USD 700 million of additional liquidity secured in October. In fact, the Jaguar Land Rover segment saw significant improvement in the quarter-onquarter period across all markets, including an increase in China sales whereas the other markets were still below the pre-pandemic levels. The inventory was also reported to be around ideal levels with the support of demand-led strategies.

So far, there have been additions of five plug-in hybrid electric vehicles and five mild-hybrid electric vehicles in FY21. There was also a strong positive FCF of GBP 463 million driven by working capital improvement. The retail sales recovery was up by 53.3 per cent on a quarter-on-quarter basis. The lower post-pandemic sales were also offset by cost savings and foreign exchange. It saw a sequential improvement in the key figures and strong performance in passenger vehicles and commercial vehicles. CVs saw gradual improvement in demand with improving market shares while PVs saw strong sales momentum with its ‘New Forever’ portfolio. The EBITDA was positive in spite of a weaker mix. It also saw strong positive CF and favourable working capital movement. 

Conclusion

The domestic automotive industry has been steadily growing ever since the lockdown restrictions have been eased. There has been acceleration in manufacturing and distribution activities since June 2020. Even though the impact of the pandemic on the supply chain continues to inhibit most of the automotive industries, improvement has been reported throughout June-November 2020. Tata Motors expects the revenue, profits and cash to be much better than H1FY21 in H2FY21 as the demand picks up speed. Liquidity is also expected to generate positive free cash flows. The company also will try to focus on delivering market-beating growth by activating an exciting portfolio. 

It will also deliver Rs 6 crore of cash and cost savings. Jaguar Land Rover aims to launch new and refreshed products and expand electrification offering. Tata Motors, during these critical times, remained anchored to its core purpose of delivering innovative mobility solutions by leveraging strategic strengths to become leaner, agile and operationally fit amidst the intensifying storm. It also prioritised capital expenditures towards more valueaccretive projects while reducing working capital and curtailing overhead costs. Given the strong determination of the company to overcome any challenges and an improving financial performance, we recommend BUY.