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Assignment
On
Rating of Tata Motors Limited using peer
rating used by CRISIL
Submitted By:
Group: 4
The automotive industry and the demand are influenced by economic conditions and rates
of economic growth, credit availability, disposable income, interest rates, tax policies,
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safety regulations, fuel and commodity prices. Negative trends among any of these would
impact the regions in which the Company operates
Muted industrial growth in India along with high inflation and interest rates continue to
showcase risks to overall growth in the market. The automotive industry is cyclical and
economic slowdowns have affected the manufacturing sector in India. A further
deterioration in key economic factors such as the growth rate, interest rates and inflation
and competitive rates adversely affect the automotive sales in India.
Although economic conditions vary from country to country, investors' reactions to
economic developments in one country adversely effects the securities of companies in
other countries. Financial instability anywhere in the world have a negative impact in the
Indian economy. A slower global economic recovery than the expected and also
significant financial disruption have adverse effect on the Company's cost of funding,
business, results of operations, condition financially and the trading price of the shares of
the company.
Industry Analysis:
The Indian automobile market is vast and hence could be sub-divided into several segments as,
two-wheelers like motorcycles, geared and ungeared scooters, mopeds, three wheelers,
commercial vehicles (light, medium and heavy), passenger cars, utility vehicles (UVs) and
tractors.
The demand is linked to the growth of economy and increase in income levels. Per capita
penetration for nine cars per thousand people is said to be lowest in the world
While this industry is highly capital intensive especially four wheelers. Though three-wheelers
and tractors face low entry barriers (technology) but four wheelers are technology intensive.
Brand cost, distribution network and spare parts availability lead to an increase in entry barrier.
Capital expenditure will increase because of the safety regulations as the Indian market is
shifting towards complying with global standards.
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When compared to the global counterparts, both two-wheeler and four wheeler segments are less
fragmented. But now as many foreign majors have entered the Indian market, things are
changing. Hence, pricing power may diminish going forward.
Profitability increases by selling more units. As the number of units sold increases, average cost
of selling an incremental unit decreases. Because the industry has a high fixed cost component.
Hence, the reason why operating efficiency through the increased localization of components and
maximizing output per employee becomes significant.
SUPPLY
DEMAND
ENTRY
BARGAINIG
BARGAININ
BARRIER
POWER
G POWER OF S
Excess
Cyclical,
S
High
capacity
seasonality
cost,
(India)
SUPPLIERS
CUSTOMERS
cap Low due to
Very high High
depends technology,
on
COMPETITOR
stiff
because
competition
availability of
eco distribution
of
options
From the sources, a total of 16 m two-wheelers were sold last year, a growth of a tepid 8% over
the last year. The slow growth because of tepid recovery in the Indian economy. Motorbikes
showed for 70% of the total two wheelers sold and grew by 2.5% YoY. The scooters segment
was the star of the two wheelers with a growth rate of 25% YoY. In the domestic market, 3wheeler segment were up 11% YoY mostly contributed by passenger carriers. Exports growth
rate was good and figured at 15% YoY.
FY15 was a strong year for M/HCVs segment because of increase in volume by 16%. Reasons
being reversal of mining bans, resumption of stalled infrastructure projects, improvement in
freight rates etc. LCVs, were however at the receiving end as volumes dropped by 12%. Thus,
overall volumes fell by 3% in CV industry.
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Tractors gave a poor performance during the year. M&M, which is known to be a market leader
in tractors, observed for a revenue decline of 7% from its farm equipment division.
Volumes of passenger vehicles (PV) grew by 4%. To go in depth, passenger cars and utility
vehicles (UVs) grew by 5% each. Volumes of vans, however, declined by 10% YoY during the
year. But Maruti Suzuki remained the market leader in passenger vehicles sector. Volumes of
vans for the company grew at a pace of 26% YoY even when industry volumes were declining.
But the companys cars and utility vehicles grew in double digits during the year.
Most of the companies observed good figures in operating margins because of various cost
rationalization measures undertaken as well as benign commodity prices.
Company Analysis:
TML is a multinational Indian automotive giant and founded in the year 1945. It is the worlds 5 th
largest manufacturing company. Some of its subsidiaries are Jaguar Land Rover, Daewoo,
Marcopolo and Chrysler. The total revenue as of March 2016 is 44502.74 Cr Rs and PAT =
234.23 Cr Rs. The current share price is Rs 503.65 as of 26 th Aug 2016. It has market cap of Rs
171023.44 Cr with a P/E 15.52 while the industry P/E is 106.92.
P/E
Dividends %
EPS
Enterprise
Beta
15.52
25
32.46
Value Cr
144771.22
1.43
The Net Sales was Rs Cr 42369.82 but the net profit observed in Dec 2015 was observed to be in
negatives. It was around -4738.95 Cr Rs. But this year it changed to positive figures. It was
figured out to be probably because Jaguar is now coming into profits.
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Tata Motors has surfaced as an automobile company of global prestige, covering 129
countries across six continents. Through operations, R&D, a vigorous dealership network
and exports, they are among Indias largest MNCs.
From commercial vehicles to cars and from India-centric operations to global ambitions,
Tata Motors is entering or driving into new domain, shedding its image of a stodgy truck
maker in favour of an upmarket identity.
As part of its business expansion strategy, TMT Joint Stock Company signed a
Distribution Agreement ("DA"), Supply Agreement and Technology License Agreement
("TLA") with Tata Motors Ltd. India. The agreements will enable TMT to become the
official distributor of select Tata Motors commercial vehicles, as well as expand its
vehicle assembly business and distribution network in Vietnam.
Tata Motors confirms its commitment to long term R&D in UK with a multi-million
pound investment through its subsidiary, Tata Motors European Technical Centre at the
University of Warwick campus.
Tata Motors, has set its eyes on being among the top 3 global commercial vehicle makers
and reclaiming its no. 3 spot in the countrys car and sports utility vehicle market.
Tata Motors share in the Indian passenger vehicle market reduced to 4.6 % in 2015-16
from 13 % in 2011-12, as Maruti Suzuki strengthened their shares through sustained
launches.
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Tata Motors announced a consolidated net profit decline of 57 % in the June 2016
quarter, as it was hit by foreign exchange losses and increased expenses. Net profit was
declined to Rs 2,260 crore from the Rs 5,254 crore in the same quarter a year before.
Capital structure
Current Ratio
These are not the only ratios the company take into consideration for rating.
Embedded is the financial ratios of Tata Motors Ltd. and its peer groups considered for rating
purpose.
Group 4_Tata Motors Ltd.xlsx
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Tata Motors has a ROCE of 3.716 which shows that it generates $3.716 of profit for each dollar
of capital employed.
The company scores the least among its peers (Maruti Suzuki India 13.218, Mahindra &
Mahindra 4.078). ROCE is least for Tata Motors Ltd. compared to its peers. So we can award a
rating of BB- in this category to Tata Motors Ltd.
5) Current Ratio:
Current ratio is a liquidity ratio that measures a companys ability to pay off its short term
liabilities with its current assets. It is an important indicator of profitability since the short term
liabilities are immediately due the next year. An ideal current ratio is considered to be 2:1, which
means that current liabilities can be met through current assets without the need to sell inventory.
Tata Motors has a current ratio of 0.46 which means that the company is unable to meet its
short term obligations. The company scores the least among its peers (Mahindra & Mahindra
1.432, Maruti Suzuki 1.328). CIPLA has got a current ratio less than its peers. So its rating
should be BB in this category.
is low, this indicates that it has low ability to pay back its interest expenses as compared to its
peers. So we are giving a weightage of 0.20 for this ratio.
If debt-equity ratio is more, then there is a high possibility that the company may not be able to
pay the debt in economic downturn. Tata Motors debt equity ratio is 0.81 which means that its
assets are financed more through equity rather than debt. So we are giving a weightage of 0.25
for this ratio and it is also one of the important parameters for judging the performance of the
company.
Net worth of a company determines the solvency in any defaulting situation. So we are
awarding it a weightage of 0.15.
Net Profit margin measures a banks ability to pay expenses and generate net income from
interest and noninterest income. It reflects effectiveness of expense management (cost control)
and service pricing policies. It also indicates whether a company is having a good competitive
advantage in selling its products with high margins and getting good profit from the operations.
So higher this profit, more robust the company is. So we are giving a weightage of 0.20.
Current ratio measures the solvency of a company in short term and how effective it is using its
current assets productively. This ratio determines whether the company is able to repay its debt
obligations timely or not. The current ratio of Tata Motors Ltd. is 0.46. So a ratio under 1
indicates that a companys liabilities are greater than its assets and the company would be unable
to pay off its obligations. While a current ratio below 1 shows that the company is not in good
financial
health,
it
does
not
necessarily
mean
that
it
will
go bankrupt.
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CONCLUSION:
Going by this weightages, we can say that Tata Motors Ltd can be awarded BB+ rating with
a positive outlook.
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