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Tata Motors: Back in the right lane - Views on News from Equitymaster

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Tata Motors: Back in the right lane

May 27, 2010

Tata Motors has announced its FY10 results. The company has reported a 31% growth in topline and the bottomline has turned profitable as opposed to a loss last fiscal on a consolidated basis. Here is our analysis of the results.

Performance summary
  • Standalone topline grows by a strong 39% YoY for the full year. This growth is led by an equally impressive volume growth of 32% YoY
  • Operating profits come in higher by a huge 137% as margins expand by nearly 5% on a standalone basis
  • Bottomline witnesses a growth of 124%, mainly on account of growth in operating profits. Higher taxes and extraordinary items offset gains on account of interest and depreciation charges
  • Consolidated bottomline turns the corner, raking in a strong Rs 26 bn in profits as against a similar loss on a YoY basis. This comes on the back of a 31% growth in topline and a more than fourfold jump in operating profits.
  • The Board of Directors has recommended a dividend of Rs.15/- per Ordinary share and Rs.15.50 per ‘A’ Ordinary share each for the financial year 2009-10. This translates into a dividend yield of 2% for the ordinary share and a yield of 3% for the ‘A’ ordinary shares.

Financial performance snapshot
  Standalone Consolidated
(Rs m) FY09   FY10   Change FY09   FY10   Change
Vehicles sold (incl. traded)       506,421       667,971 31.9%         733,572      872,951 19.0%
Sales       256,297       355,931 38.9%         708,810      925,193 30.5%
Expenditure      239,284       315,588 31.9%         690,322      844,033 22.3%
Operating profit (EBDITA)          17,014         40,343 137.1%            18,488         81,160 339.0%
Operating profit margin (%) 6.6% 11.3%   2.6% 8.8%  
Other income            9,260          18,535 100.2%              7,990         17,931 124.4%
Interest            6,737          11,038 63.9%            19,309        22,397 16.0%
Depreciation            8,746         10,339 18.2%            25,068         38,871 55.1%
Profit before tax         10,790         37,500 247.5%         (17,900)        37,822 -311.3%
Tax                125            5,895 4615.7%              3,358         10,058 199.6%
Share of profit in associates  NA    NA                    (517)               845 -263.3%
Minority interest  NA    NA                     (115)               303 -364.2%
Extraordinary income/(expense)              (653)          (9,205) 1310.4%            (3,393)         (2,596) -23.5%
Profit after tax/(loss)          10,013         22,401 123.7%          (25,053)         25,711  
Net profit margin (%) 3.9% 6.3%   -3.5% 2.8%  
No. of shares (m)             514.1            570.6                 514.1           570.6  
Diluted earnings per share (Rs)                39.3                  45.1  
P/E ratio (x)                 18.9                  16.5  

What has driven performance in FY10?

    (Units) FY08 FY09 FY10 (change)*
    M&HCV 166,037 113,672 155,137 36.5%
    LCV 147,334 151,338 218,478 44.4%
    Utility Vehicles           47,700 39,295          33,531 -14.7%
    Cars 167,058 160,832 201,399 25.2%
    M&HCV         11,726          8,405          12,692 51.0%
    LCV         23,024 16,496          15,219 -7.7%
    Utility Vehicles            2,542             622               593 -4.7%
    Cars         11,215          6,088            5,637 -7.4%
    M&HCV       177,763       122,077        167,829 37.5%
    LCV       170,358       167,834        233,697 39.2%
    Utility Vehicles           50,242        39,917          34,124 -14.5%
    Cars       178,273       166,920        207,036 24.0%
    Grand total       576,636       496,748        642,686 29.4%
    *FY10 upon FY09

  • The 39% growth in standalone topline was led by 32% volume growth during the fiscal. If one puts aside traded vehicles, then the growth in volumes has come in at 29% YoY. The commercial vehicles segment emerged as the standout performer for the company. In the domestic market, company’s commercial vehicles sales increased by 41% to 373,842 units leading to a market share of 64.2%, up from 63.8% of last year. The growth was well supported by both the Medium and Heavy Commercial Vehicles and the Light Commercial Vehicles which grew by 36.5% and 44.4% respectively. During the year, the company launched and started sales of the Prima range of globally benchmarked Heavy Trucks. A number of variants from the Ace family were also introduced.

  • As far as the passenger vehicles are concerned, growth in the domestic markets came in at 17% YoY. However, the growth goes up to 25% if one includes Fiat and Jaguar and Land Rover vehicles distributed in India. The market share for Tata passenger vehicles for the period stood at 12.4%. The company launched the new Indigo Manza and the Sumo Grande MK II during the second half of the year which improved company’s market position in H2 compared with H1 in these segments. The company also ramped up the production of the Nano at the plant in Uttarakhand, and delivered 30,763 units of Nano during the year. Along with Fiat, the company has a joint market share of 13.7% in the industry. The company has planned several new product launches in the near future to defend and improve its market position.

  • On a consolidated basis, the topline growth has come in at 31% in value terms. However, growth in volumes lagged at 19% YoY. This was mainly due to an 11% fall in cumulative volumes of Jaguar Land Rover. However, it should be noted that JLR sales improved favorably in the second half owing to improvement in macro economic situation and launch of new products. Tata Daewoo Commercial Vehicles Company Limited, company’s subsidiary based in South Korea, continued to see improvement in domestic demand while exports came under pressure resulting in overall sales decline of 4% over the previous year.

    Cost break-up...
      Standalone Consolidated
    (Rs m) FY09 FY10 Change FY09 FY10 Change
    Raw materials 164,257 197,860 20.5% 410,464 529,569 29.0%
    % sales 64.1% 55.6%   57.9% 57.2%  
    Staff cost 15,514 18,361 18.4% 72,974 87,518 19.9%
    % sales 6.1% 5.2%   10.3% 9.5%  
    Other expenditure 59,514 99,367 67.0% 206,884 226,947 9.7%
    % sales 23.2% 27.9%   29.2% 24.5%  

  • Continued focus on cost efficiencies and price increases undertaken by the company to combat strengthening commodity prices aided the company to grow realizations and deliver double digit operating margin of 11.3% for the standalone operations. This was a huge improvement from margins just under 7% during FY09 and thus enabled the company to grow its operating profits by a huge 137% on a YoY basis.

  • As far as consolidated operating margins are concerned, thanks to the huge operating leverage, operating profits have grown more than fourfold on the back of scaling back of other expenses by the company.

  • PAT on a standalone basis has grown by 124% for the fiscal. This is slightly lower than the growth in operating profits on account of huge increase in tax outgo as well as extraordinary items. As far as extraordinary items are concerned, they contain a loss in the region of Rs 8.5 bn on account of redemption of preference shares by a subsidiary of the company.

  • On a consolidated basis, the company had reported a loss during FY09 of the order of Rs 25 bn. However, thanks to a huge jump in operating profits during FY10, the loss has gone away and instead, the company has managed to log in a strong profit of Rs 26 bn.

What to expect
At the current price of Rs 742, the stock trades at a price to cash flow multiple of 9x its expected price to cash flow per share (For ResearchPro subscribers, view our current opinion on the stock). The company’s bottomline has come in pretty close to our estimates for the full year on a standalone basis. The turnaround in JLR operations augurs well for the company. However, it will not imply a significant change in our valuations as we value the JLR subsidiary based on the acquisition price paid by the company. Important to add that the company has gone back to the profit trajectory in its India operations that existed before FY09. We remain confident on the company’s ability to deliver value in India over the long-term. However, at the current price, the medium term upside is more or less factored into the price as per our opinion. We will come out with a revised report shortly.

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