Final Presentation Cf

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FINANCIAL ANALYSIS OFTATA MOTORS

SUBMITTED BY:ABHIJEET KUMAR(29)

ABHISHEK MIGLANI (53)ADITYA KEDIA (51)

AMIT KUMAR (79)HARMAN JEET SINGH(77)



FLOW O

FPRESENTATION

EVOLUTION OF AUTOMOBILE INDUSTRY HISTORY INTRODUCTION BACKGROUND OBJECTIVES COST OF CAPITAL WORKING CAPITAL MANAGEMENT LEVERAGE ANALYSIS RATIO ANALYSIS CONCLUSION KEY LEARNINGS BIBLIOGRAPHY



Evolution of Automobile Industry

Initial Years

Manufacturing was licensed

High Customs duty on import

Steep excise duties &

sales tax

2 Major players:

Premier Automobiles Ltd

& Hindustan Motors

1980s

Entry of MUL, better product,

with government support

Seller¶s Market

Long Waiting Periods

Early to mid 90s

Seller¶s market and long

waiting periods

Delicensing in 1993

Removal of capacity

restrictions

Decrease in customs &

excise

Auto finance boom- more

players (foreign banks &

non banking companies,

better schemes.

Mid 90s ± Early 2000s

Buyers market

Increase in Indigenization

Easy Auto finance

Manufactures diversifyinginto related activities:

finance lease, fleet

management, insurance

and used car market



AUTOMOBILE

2 WHEELER 3 WHEELERPASSENGER

VEHICLE

COMMERCIAL

VEHICLE

MOTORCYCLE SCOOTERS SCOOTERETTES MOPEDS

I.C.V. M.C.V. H.C.V.



Favorable Demographics

Improving income curve

Reducing interest rates

Cost Pressure

High Expectations

Inadequate Infrastructure Development

KEY CHALLENGESKEY ENABLERS

Key Focus Areas

Product development( includes collaboration, new products developed)

Vendor base (quality of vendors, skill levels , size etc.) Manufacturing capability( quality levels, productivity & skill levels, technology )

Service levels

Supply chain

Labor law

Leverage IT

Key Features of Future Auto Policy

Foreign Direct Investment

Import tariff

Incentives for Research and Development (R&D)

Environmental Aspects

Other measures





Tata Motors ² An Introduction

India¶s largest Automotive company in revenue terms

Strong R&D skills

Capability to develop vehicle platforms indigenously at a relativelylow cost

Began manufacturing Commercial vehicles in 1954

Currently has f our manuf acturing plants at Jamshedpur, Pune,Lucknow and Gunsan (S. Korea)



Tata Motors ² An Introduction

Widest range of product offerings in Indian market

Medium & Heavy Commercial vehicles

Light Commercial Vehicles including Pick ±ups

Multi-Utility vehicles

Passenger cars

Domestic market leader in Commercial Vehicles and third-largest player in Passenger Vehicles

Listed on NYSE on Sep. 27, 2004 through conversion of GDRs



Organization Structure ± TATA MotorsSenior Management Team

R N Tata

(Chairman ± Tata Motors)

A P Arya

(President ± Heavy

and Medium

Commercial Vehicles EngineeringResearch Centre

Ravi Kant

(Managing Director)

Rajiv Dube

(Sr Vice President ±

Passenger Cars)

P P Kadle

(ED ±

Finance &

Corporate

Affairs)

P M Telang

(President ± Light

and Small

Commercial

Vehicles)



Comparatively Speaking

Brand: Tata Ford GM

Sales: $7.6 billion $172 billion $181 billion

# of employees 33,900 246,000 266,000

Profit Margin 20% 17% 6.7%



Reasons for fall in GDP growth rate

The first year of 11th Five Year Plan saw a marginal fall in GDP growth rate

of 9%.

The slow down in economy.

Increase in inflation. Poor credit availability.

Hardening of interest rates

Rise in prices of input materials.

Proposed increase in fuel prices and volatility in foreign exchange rates.

Manufacturing expenses, employee cost increased

Net raw material consumption inclusive of processing charges increased ,with pressure on volumes and margins.



Passenger Cars Utility Vehicles Trucks Buses Defense

Product Profile of Tata Motors



Beta () the beta () of a stock or portfolio is

a number describing the relation of

its returns with that of the financialmarket as a whole

() = Coefficient corelation*SD of stock/SD of the market

For tata motors =115.9*-0.68/654.6= -0.12



Cost Of capital The cost of capital is the cost of a

company's funds (both Debt and

equity), or, from an investor's pointof view "the expected return on aportfolio of all the company's existingsecurities".



Cost of Equity The annual rate of return that an

investor expects to earn when

investing in shares of a company isknown as the cost of equity

Cost of Equity = Risk freereturn+b*market premium



Cost of Equity For 2009-10

R(f)=8.5 % , b=-0.12, market

premium = 6 %

Thus, CoE=7.42 %



Cost of debt The effective rate that a company

pays on its debt.

Cost of debt = Interestpayment/Total debt

For 2009-10

=2239 crores/35192 crores*100=6.36



Weighted average cost of

capitalA calculation of a firm's cost of capital in which each category of

capital is proportionately weighted.All capital sources - common stock,preferred stock, bonds and any otherlong-term debt - are included in a

WACC calculation



WACC

WACC = E*R(e) + D*(Rd)*(1-T(c))/V

Where, E= Firm¶s equity

R(e)=Cost of equity

D=Firms¶s debt

R(d)=Cost of debt

T(c) = Corporate tax rate



WACC For year 2009-10

= 570 cr

*7.42+7635cr*7.42+35192cr*6.36/(570+35192+7635)

=6.94 %



WORKING CAPITALMANAGEMENT



Working capital, also known as net working capitalor NWC, is a financial metric which represents operatingliquidity available to a business. Along with fixed assetssuch as plant and equipment, working capital is

considered a part of operating capital. It is calculated ascurrent assets minus current liabilities. If current assetsare less than current liabilities, an entity has a working capital def iciency, also called a working capital def icit.

Working Capital = Current Assets í Current Liabilities= 337854300000 - 340730000000

= -220,318,877



CURRENT ASSETS

A balance sheet account that represents the value of allassets that are reasonably expected to be converted intocash within one year in the normal course of business.Current assets include cash, accounts receivable,inventory, marketable securities, prepaid expenses andother liquid assets that can be readily converted tocash.

CURRENT LIABILITIES

A company's debts or obligations that are due within oneyear. Current liabilities appear on the company's balancesheet and include short term debt, accounts payable,accrued liabilities and other debts.





OPERATING LEVERAGE Operating leverage is a measure of the extent

to which, fixed operating costs are being usedin an organization.

Formula(s) for calculating Operating leverage:

Degree of Operating Leverage

=

or

Contribution Margin

Earnings Before Interest and Taxes

Total Sales TotalVariable Cost

Total Sales Total Variable Cost Total Operating Fixed Cost



Calculation of Operating Leverage

for Tata MotorsDEGREE OF OPERATING LEVERAGE

YEAR 2009-10 2008-09

SALES 93611 75502

VARIABLE COST 17284 17500

EBIT 10407 2995

DOL 7.334198 19.36628





Calculation of Financial Leverage

for Tata MotorsDEGREE OF FINANCIAL LEVERAGE

YEAR 2009-10 2008-09

EBIT 10407 2995

EBT 3522 2129

DFL 2.954855 1.406764



Combined Leverage When financial leverage is combined with operating

leverage the effect of a change in output (sales) inmagnified in the change in earning per share (EPS).Operating leverage gives us the change in EBIT with achange in sales and financial leverage gives us the

change in EPS with a change in EBIT. We cam then seethe change in EPS for a change in sales (volume of output). The combining both concepts as can be seenbelow:

Degree of Combined Leverage

+

or= Degree of Operating Leverage x Degree of Financial Leverage

P ercent Change in Earnings P er Share

P ercent Change in Sales or volu e( )



Calculation of Total Leverage for

Tata MotorsDEGREE OF TOTAL LEVERAGE

YEAR 2009-10 2008-09

DOL 7.334198 19.36628

DFL 2.954855 1.406764

DTL 21.67149 27.24378



Ratio Analysis



Operational &

Financial Ratios



Earning per share: The portion of a company's profit allocated to each outstanding

share of common stock. Earnings per share serves as anindicator of a company's profitability.

In case of Tata Motors the EPS it has had a phenomenal rise f rom 19.4 to 39. This implies that the company hasbeen prof itably working for shareholders benef it.

Calculated as:

Net Income- Dividend on Preference Stock

Average outstanding Shares



Dividend per share:

The the sum of declared dividends for every ordinaryshare issued. Dividend per share (DPS) is the totaldividends paid out over an entire year (including interimdividends but not including special dividends) divided by

the number of outstanding ordinary shares issued. Nowin case of Tata Motors the dividend per share hasincreased f rom 6 to 15. This implies that it will be valuable for the shareholders to hold on to the Tata Motors shares.

DPS can be calculated by using the following formula:DPS = (D ± SD)/ S

D - Sum of dividends over a period (usually 1 year)SD - Special, one time dividendsS - Shares outstanding for the period.



Performance Ratios



R eturn on Assets Or R eturn on investments:

This is an important ratio for companies decidingwhether or not to initiate a new project. Simply put, if ROA is above the rate that the company borrows at thenthe project should be accepted, if not then it is rejected.

ROA formula is mentioned below as:

Net Income + Interest Expense

Total Assets

The return on asset for Tata Motors has increased f rom .98 to 1.23, now this specif ies that the assetshave been eff iciently utilised and being put to the best use and now the deciding rate for acceptance of the project the ROA has to be 1.23, otherwise the project under evaluation will be discarded.



R eturn on Equity:

The amount of net income returned as a percentage of shareholders equity. Return on equity measures acorporation's profitability by revealing how much profit acompany generates with the money shareholders have

invested.

ROE is expressed as a percentage and calculated as:R eturn on Equity = Net Income/Shareholder'sEquity

The return on equity(ROE) In case of Tata Motorshas increased f rom -70% to 329%, this impliesthat the prof itability generated by the company af ter investing the shareholders¶s f unds hasincreased.



RETURN ON CAPITALEMPLOYED:

A measure of the returns that a company is realizingfrom its capital. Calculated as profit before interest andtax divided by the difference between total assets andcurrent liabilities. The resulting ratio represents the

efficiency with which capital is being utilized to generaterevenue.

Also the ROCE in case of Tata Motors has increased from6.41 to 9.66, this implies and focuses on the efficiencylevel with which the capital is being employed and

further used by the Tata Motors.



Equity and Total Debt R atio:

A measure of a company's financial leverage calculatedby dividing its total liabilities by stockholders' equity. Itindicates what proportion of equity and debt thecompany is using to finance its assets.

Total Liability / Shareholder¶s Equity

This ratio has remained consistent for the Tata Motorsover two three years. So we can say that the financing

proportion has been consistent over years.



Liquidity Ratios



Quick R atio:

An indicator of a company's short-term liquidity. Thequick ratio measures a company's ability to meet itsshort-term obligations with its most liquid assets. Thehigher the quick ratio, the better the position of

the company.

The quick ratio is calculated as:

(Current Assets ± Inventories)/ Current Liability

The quick ratio of Tata Motors is around 8 which is very

high as compared to the ideal ratio that should be 1:1,that states the company¶s short term liquidity is not atall satisfactory.



Current R atio:

A liquidity ratio that measures a company's ability to payshort-term obligations. The adequate current ratio is2:1. In case of Tata Motors the current ratio is .39,which signifies that the company has to look into the

short term workings of the company.

The Current Ratio formula is:

=337854300000 = 0.62

340730000000



RATIOS OF TATA MOTORS:

Particulars Mar 2010 Mar 2009 Mar 2008 Mar 2007 Mar 2006

Operational &

Financial Ratios

Earnings Per Share

(Rs)39 19.4 23.40 17.41 12.22

DPS(Rs) 15.00 6.00 4.50 3.50 2.80

Performance Ratios

ROA(%) 1.23 0.98 0.90 0.98 0.89

ROE(%) 17.77 12.21 19.42 16.89 13.89

ROCE(%) 6.73 5.54 5.45 5.11 4.52

EPS Growth(%) 68.90 27.95 34.41 42.47 1.66

Liquidity Ratios

Total

Debt/Equity(x)1.11 0.8 0.8 0.6 1.1

Current Ratio(x) 0.62 0.44 0.46 0.54 0.47

Quick Ratio(x) 0.46 0.28 0.24 0.38 0.32





Key Learnings

The Tata Motors strategy to build its business upon strongcustomer franchises has continued to deliver impressiveresults, and they have continued to extend there reach as wellas deepen existing customer relationships.

The Tata Motors strives for the continual enhancement of shareholder value through efficient use of available capital in amanner that leads to a high return on equity.

Efforts were made through the year to offer integratedcorporate Tata Motoring solutions to the Tata Motors clientele,which resulted in significant growth in core fee income.

For market risk management, the Tata Motors uses both nostatistical measures like position, gaps and sensitivities andstatistical measures like Value at Risk, supplemented by stresstests and scenario analysis.

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