Tata Motors Fapc_f
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Transcript of Tata Motors Fapc_f
Prepared bySantonu; Swastayan; Bharat; Shreerang; Saurabh; Prakash; Mayank
Financial AnalysisTata Motors
Roadmap• Company History• Product range & Organization• Macro environment
• Variables• Market structure• Risk identification• Trends in Industry
• Recent Performance of Tata Motors• Value Chain Analysis• Identification of Financial & Non Financial Indicators• Analysis of the indicators• Final Comments• References
Company history• India’s Largest Automobile company• Consolidated Revenues of USD 14 billion (2008-09)• Leader in commercial vehicle ( Market share:63.8%)• Top Three in Passenger vehicle(Market share:13%)• 4th Largest Truck Manufacturer & 3 largest bus manufacturer• Manufacturing units:
• Jamshedpur, Pune, Lucknow, Pantnagar, Dharward .• Nano Plant : Sanand (Gujarat)
• 3500 touch points• Made history when world’s cheapest car “Nano” was unveiled• Some major Acquisitions:
• Hispani Carrocera (2009) [Spanish bus manufacturer]• Jaguar and Land Rover (2008) [prestigious brand]• Daweeo Commercial vehicles, Korea (2004)
• JV with Marco Polo (Brazil), & Thonburi Auto Plant (Thailand)
Product Range
Organization Structure
Organization Structure
• Domestic Operations• Commercial Vehicle business unit
• Medium and Heavy Commercial vehicles• Light & Small Commercial Vehicles• Buses & Passenger vehicles• Spare parts, AMC, and RECON( Reconditioned Business)
• Passenger Business unit• India’s first indigenously designed compact car Indica (Market
Share:10%)• Bought iconic brands Jaguar and Land Rover in 2008• Product Range from one lakh people’s car to high end luxury models
Macro Environment Trends• Political and Legal Factors
• Emission• Safety• Government Policy
• Economic Availability• Availability of Loans
• Socio-Economic• Technological• Infrastructure• Demographic• Market Competition
Political FactorsPre-1998 1998-2008 2008 onwards
First stage emission normsintroduced.
Increasingly StringentEmission & Safety Regulations e.g. Bharat Stage II etc
Emission norms as of 2000:Bharat Stage IV (EURO IV) in Metros
Central Motor Vehicle Rules (CMVR) cameinto force from 1989 andSerious enforcement ofRegulations came intoeffect.
Alignment of Indian regulations(AIS/ BIS) with Europeanregulations was attempted.
No major change
The automobileSection underwent delicensing andopened up for 100 percent foreign directinvestment.
The Finance Bill 2006 has given a further boost tothe Automotive Industry byreduction of the excise duty onthe small motor vehicles
Policies continue to promotegrowth.
Economic & Infrastructural FactorsPre-1998 1998-2008 2008 onwards
High interest rates andstricter lending norms
Lowering of car finance interest Rates .But after Economic slowdown in2008, the rates have again gone up.
Car finance has shown strong sign of recovery.
Very Poor connectivity across the Country
There are inadequate ports,insufficient feeder rail lines to theports, and bad roads
The GOI has also launched a program for the construction of “66” 500 kilometers of national highways of which 50 000 kilometers is expected to becompleted by 2015.
Port Infrastructurewas inadequateto handle toExports
The Ministry of Railways is in theprocess of developing freightcorridors in Railways.
Specialized port infrastructure for handling vehicle exports is beingDeveloped especially nearthe main automotiveclusters near Mumbai and Pune in the West,Chennai in the South, andKolkata in the East.
Market started opening upIncreasing competition.
Foreign Players set up their plats,for example Ford, Mercedes,Skoda, Toyota, Hyundai, Hondaall started manufacturing inIndia.
Cut throat competition in the market.
Market Structure
• The Automobile market both in India and abroad is extremely competitive
• The customers are very powerful
• Threat of substitute products is very high as well
Sources of Strategic & Business Risk• Interest Rates & Credit Availabilty• Upward movement in Input costs• Exchange Rate Risk:
• Exports are 9.8% of the turnover • imports constitute 4.6% of material consumption
• Freight Rates: Slowdown in freight movement & increase in fuel price
• Railways as competition• Overseas Acquisition of Jaquar and Land Rover operations• Volatility in Oil Prices• Domestic Markets affected by cyclicity of Automobile industry &
slowdown of economy• New Competition like Daimler, Volvo, Scannia, Ashok Leyland• Investments in New projects like Nano & World Truck• Environmental Regulations
Automobile Industry: Trends • Macro trends:
• focus on energy prices & energy efficiency• Environmentally conscious consumers attracted to new
technologies• Cost pressures due to growing competition between
international and domestic car manufacturers• Employment of contract employees over permanent staff
• Market trends & Forecast:• The Big Three U.S. automakers approx 76 % of U.S. passenger
vehicle; Japanese automakers 18%; European 2%• hybrid market will top out at 3 percent by 2010 (JD Power)• Currently 800 million cars in active use. By 2050, a projected 3.25
billion cars in India & China• Bigger investment in technology• Innovations at process level and big consolidations• operating profit of the industry as a whole may go southward
Financial Performance2008-2009 2007-2008
• GDP growth down to 6.7%• Sales volume 13.5 % lower than 2007-
08• Domestic commercial vehicles
declined by 15.2 %• Passenger vehicles volumes declined
by 4.8 %• Exports declined 38.6 % (global
meltdown and currency fluctuations)• Profit after Tax (PAT) decreased by
50.7% • Basic EPS dropped to 22.70• Balance Sheet size of the Company
increased to Rs. 26,425.64 crores as on March 2009
• Gross debt (total of secured and unsecured loans) increased to Rs. 13,165.56 crores
• GDP growth to 9% in FY 07-08• Commercial vehicle industry which grew by
over 33% in FY 06-07 posted an 8.1% growth this fiscal.
• The passenger vehicle industry managed to grow by 11.1 %
• Vehicle exports also grew at a lower rate of 11.9% as compared to 14.8% previous year
• Profit after Tax (PAT) increased by 6.03%• Basic Earnings per Share (EPS) increased by
5.79% to Rs.52.64• Balance Sheet size of the Company increased
to Rs. 15,095.74 crores in FY 2007-08 from Rs. 11,665.72 crores in FY 2006-07.
• Gross debt (total of secured and unsecured loans) increased to Rs. 6,280.52 crores as on March 31, 2008 as compared to Rs. 4,009.14 crores as on March 31, 2007
Non Financials
Manufacturing
Pre -1998 1998-2009 2009 onwards
•Jamshedpur plant(1945)
Expansion Continued
•Enhancing production capabilities at its 3existing plants
•Primarily consists of Truck factory, Engine Factory etc.
•New capacities at Uttarakhand forAce as also JV with MarcoPolo SA, Brazil
•Pune Plant (1966) and has a Production Engineering •Enable TM improveexisting ones without resorting to imports of dies
New plant at Dharwad and Thornburi (plant at
Thailand)
Non Financials
Supply Chain Strategy
Pre -1998 1998-2009 2009 onwards
JIT & integrated facilty to build its
own castings
Kanban card signaling & purchasing components from suppliers globally
The Supply chain of Nano isthe main contributor for low cost.
Emphasis on reducing transport costs by relocating
Vendors close to the plant
Robust IT systems both SAPand Siebel to have seamlessintegration with Customer,Supplier, dealers
Changedfocus from competitive priceand low cost to globallycompetitive prices from globallycompetitive suppliers.
80 % of components from 200 odd
vendors
Ariba Spend Management to findnew suppliers, rationalize itssupply base, and run on-linemarkets.
Financial & Non-financial indicators• Value chain based approach:• Understand the synergy between critical area of a typical
automotive value chain and the economic aspect• Combination of Operational and Economic aspects
• Financial and non financial area of automotive business• Assess the competitive advantage• Estimate risk
Financial & Non-financial indicators…
Financial & Non-financial indicators…
The diagram has 2 distinct chains which is further broken into smaller value entities:-
• Operational value chain• Economic value chain Operational :-• Supply Chain: Supply chain management (SCM) is a critical factor an automotive company.
Success depends on how successfully it manages its Supply chain in terms of material movement, cash flow and information flow
• Manufacturing: Setting the right indicator to measure the efficiency of manufacturing activity is key for Tata Motors to be competitive in this Global market
• Quality: Quality leadership is mandatory to succeed in a global competitive market, hence the choice of suitable indicators
• Technology: With the environmental, safety and quality requirements getting stringent, technology is going to play a key role in automotive industry. Hence the need of monitoring the various investments in Technology
• Collaboration: Collaboration across design, supply chain, manufacturing and quality is critical. Though it’s very difficult to set indicators to measure the same, tracking trends in terms of operational parameters do give fair idea
Financial & Non-financial indicators…• The economic value chain comprises of the asset base, the
employed capital, stake holder’s expectation etc. A simplified view is as follows:-
Assets Sales Earnings Dividend
Equity Debt
Financial & Non-financial indicators…Based on the above considerations we have arrived at the
following indicators.
• Operational ratios, covering SCM, Manufacturing, Quality part of value chain ( both financial and non-financial aspects)
• Risk indicators• Overall performance indicator• Technology indicators• Confirmatory indicators
Financial & Non-financial indicators…
Area Ratio
SCM Creditors Payment Period SCM Creditors Turnover Ratio SCM Debtors Collection Period SCM Debtors Turnover Ratio
SCM Relative Bargaining Power Ratio
SCM Finished Goods Inventory Holding Period
SCM Current Asset Turnover Ratio
Manufacturing Raw materials consumption ratio
Financial Gross Profit Ratio Manufacturing Contribution Ratio (P/V Ratio) Financial Liquidity Ratio
SCM Current Ratio
SCM Quick Ratio
Operating Ratios
Financial & Non-financial indicators…
• Degree of Operating Leverage• Degree of Financial leverage
• Apart from the above risk indicators the following indicators can be used to measure the environmental risk.• Environment consciousness• Alternative Fuel Models• Environmental Management Expenditure
• Indulges in many CSR initiatives (fuel powered vehicles, reduce its Carbon footprint
• All these initiatives show Tata Motor’s commitment towards Environmental Management Expenditure.
Risk Indicators
Financial & Non-financial indicators…
Overall Performance IndicatorsIndicator Ratio
Profitability Operating Profit Ratio
Profitability Value Added Ratio
Profitability Return on Equity
Efficiency Total Assets Turnover Ratio
Efficiency Total Inventory Turnover ratio
Efficiency Cash Flow Return on Equity
Stock market ratio Debt-Equity Ratio
Stock market ratio Retention Ratio
Stock market ratio Cash Flow to Total Debt Ratio
Stock market ratio Price- Earnings Ratio
Financial & Non-financial indicators…
• To mitigate the risk of substitute products Telco should invest heavily in Technology and new product development. We suggest the following indicators to measure the efforts to mitigate this risk.
• IN terms of Technology Strategy, Tata Motors have been being steadily investing to develop In-House capabilities. Tata Motors have also acquired a design company in UK with 1400 engineers that work closely with ERC to design automotive of global standard
• Jaguar acquisition Access to high end technology
Ratios Used to measure synergy in value chain• The ratios that are considered • Interest Coverage Ratio• Altman’s Z-Score Analysis (to understand the synergy of value chains)• Extended DuPont• SGR analysis ( to understand the sustainability of growth)
Technology
CONFIRMATORY RATIOS
Financials Common Size & Trend Statements for the company
Computation of ratios under each category and analysis
It is to be remembered that ratios don’t bring outany information in isolation; hence making anyopinion based on a particular indicator may lead to serious error.
Financials Common Size & Trend Statements for the company
• We have used the percentage values of common size analysis to determine the movement of the financial indicator viz-a-viz sales or total assets, the common base considered, over the years. Following are the trends of financial indicators;
• Gross & Net Fixed Assets• Raw Material, WIP and Finished goods inventory• Receivables & Sundry Debtors• Industrial Sales of goods • Marketing, Distribution and Financing expenses
Financials Common Size & Trend Statements for the company
• Ratio Analysis : Refer file Ratio Final Final _f
Trend Graphs
Trend Graphs
Final Comments
• Tata Motors embarked on a multi-stage turnaround strategy and has managed to achieve good efficiency
• Operational and supply chain efficiency improved. • Better inventory turnover ratios, manufacturing efficiencies, its
bargaining power etc• Expansion into non cyclic businesses, International expansion
to hedge economic and country risk• R&D wing ERC (Engineering Research Center) has been
strengthened• Long term sustainable holistic strategies to mitigate business
risk by investing in Green technologies and CSR activities• However, the Z score trend is a matter of concern
• Retained Earnings/Total Assets • Market Value of Equity/Total Debt
Appendix 1 -choice of period of analysis• Cyclic industry• Chosen period ,1999-2009 captures company’s performance
during one complete business cycle.
Appendix II-Formulae and justification for ratios• Refer Pg 37 of docx file
Appendix II-Formulae and justification for ratios• Refer Pg 37 file Ratio Final Final _f
Appendix III-Formulae for confirmatory ratiosInterest Coverage Ratio = EBIT / InterestAltman’s Z-Score Analysis• The Z value is defined as under,Z = 1.2 X1 + 1.4 X2 + 3.3 X3 + 0.6 X4 + 0.999 X5 Where X1 – Net
Working Capital/ Total Assets; X2 – Retained Earnings/Total Assets; X3 – EBIT/Total Assets; X4 – Market Value of Equity/Total Debt; X5 – Sales/Total Assets
Extended DuPont ratio = Total Asset Turnover Ratio * Total Leverage Ratio * Cash Profitability Ratio * FCF Ratio * Degree of FCF Leverage
SGR analysis:-• SGR = Net Profit Ratio * Asset Turnover Ratio * Retention
Ratio * Total Leverage Ratio• = (Net Profit/Net Sales) * (Net Sales/Total Assets) *
(Retained Earnings/PAT) * • (Total Assets/Net Worth)
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