[jalsa777]

Tata Motors is literally setting the stock market on fire. The stock is trading at Rs. 312 as of today. It has risen by a whopping 71.4% since the beginning of 2012. Rarely does one see this kind of an increase in such a short period for a blue-chip stock.


What has led to this rally?

Simply put, it’s Jaguar-Land Rover. JLR has seen its revenue increase by 41% to Rs. 3746.4 crore in the Q3 FY12 (Oct-Dec 2011), as compared to Q3 FY11. While this may sound impressive enough, profit before tax has increased by a massive 86.2% to Rs. 559.3 crore. This shows that all the cost-cutting measures taken by JLR seem to be working. The margin is expected to increase further as JLR shifts some of its production to China, thus availing of lower manufacturing costs.

On the other hand, Jaguar sales have decreased by 7% in the last 9 months of FY12 (compared to FY11). It is Land Rover sales that have gone up by 31% and keep JLR strong. This can be largely attributed to the Evoque. Land Rover shipped 32,051 units of the Evoque, making it the 3rd most popular product in its line-up, after the Range Rover Sport and the Discovery. The Evoque is currently experiencing a backlog of ~6 months and is constrained by capacity.

Output of its UK factories is being increased, while the collaboration with Chery Automobiles of China for production of some models there will ensure that the Chinese market is covered. This is important because sales in China have increased by 88% and now account for 16.3% of global sales, up from 10.5% a year ago. Demand from China is not going to be waning because the Chinese economy is doing well.

But it seems like the market has already discounted the future performance of the company. What this means is that the current stock price is already corresponding to the future "good performance" of JLR. Tata motors is being traded at a P/E (Price to Earnings) ratio of almost 8; this is on the upper side of its historic PE (I have considered the last quarter earnings and multiplied them by 4). Dalal Street is expecting an IPO of JLR and is very bullish on the stock. While the IPO might eventually come, there is no news of when.


What about the parent company's (Tata Motors') performance?

Stand-alone performance of Tata Motors isn't very good. While revenue has gone up by 18.2% to Rs. 13,338 crore in Q3 FY12, profit after tax has gone down by 57.6% to a mere Rs. 173.7 crore. That's less than 1.5% of revenue!! The company says that high marketing spend and input cost pressure have resulted in the erosion of margins.

The company does not have any big-ticket product launches. Also, its bet on the Nano has not paid off. Commercial vehicles are doing well and that is the one saving grace for Tata Motors. I do not expect performance to improve in the medium-term at least.


Dangers:

JLR is doing exceptionally well and will continue to do so, as long as the global economic scenario remains consistent. Any slow-down in the global arena will adversely affect the company. Tata Motors is struggling in the Indian market with wafer-thin profit margins.

[GTO]

Thread moved from the Assembly Line to the Indian Car Scene. Thanks for sharing!

[vineethvazhayil]

Tata motors has plans (at least the media claims they have) to go public with JLR in the UK to raise funds. However TML claims they will only be taking some more debt instead of going public. If JLR's production moves to China, will the impression of premium and quality still remain with the car buying population?

Anyway, TMLs stellar financial performance is only due to the luxury brands that it acquired. The Tata brand of products haven't done as well as they could have, considering how the domestic market for passenger and commercial vehicles has really grown in the last 3-5 years.

[teamveevee]

Originally Posted by vineethvazhayil

If JLR's production moves to China, will the impression of premium and quality still remain with the car buying population?

I believe the JLRS assembled in China is for sale in China only. So should not affect the brand.
I think the Personal Car division is a drag on parent TM is bottomline. As a TM investor, i wish they stop producing Nano, aria etc. But as a vehicle enthusiast i want them to continue building quality cars at affordable price. Sell Passenger Car Division to FIAT, buy FIAT's Heavy vehicles division!.

[Tstag]

Tata motors has a great company in JLR with a very bright future. But Tata needs to use it's British engineers knowledge to much better effect to rescue it's own car business. Why not just get JLR to design a range of cars to take on Ford and co in Europe? They could then build the cars in India/ the UK and target KIA. KIA hired Audi engineers to do the same thing and it worked.

[SmartCat]

Tata Motors' last 10 year stock price movement looks something like this -



The stock price is at the all time high levels - that's a good sign.

But the biggest danger for investors in automobile companies like Tata Motors, Ford, GM etc is that they can swing from large profits to large losses and back to larger profit - all within a few years. Tata Motors might be a blue chip, but it can lose 80% of its value in 1 year flat. Losing 50% of its value won't raise any eyebrows at all. From the graph, one can note that stock price movements of Tata Motors puts the scariest roller coaster to shame.

To well wishers of Tata Motors: Be happy that an Indian company is making waves globally, and making good money.

To current shareholders of Tata Motors: Sell completely or partly. In cyclical companies like Tata Motors, one should sell when the news is good and buy when news is bad. Any trouble in Europe could swing the company back into losses.

To investors who want to buy Tata Motors: Hold your BHP (horses) for now, and wait for the right time to invest.

[Tstag]

I'd buy Tata motors stock as a long term investment. JLR have lots of new models coming and sales are soaring. They are set to be the next BMW and that will transform their fortunes

[scuderiamania]

I'd like know what other BHPians thing of the possibility of TATA selling its rights to manufacture TATA cars in other countries. I had read somewhere that TATA had entered into a contract with some Indonesian company wherein they would manufacture and sell TATA Nanos in Indonesia and pay TATA a percentage of the revenue. Since there is hardly any cost involved in earning this revenue, can TATA not replicate this model else where is the world, in places like Latin America, South east Asia, Africa and maybe even China?

IMO, just relying on JLR is not the way forward.

[scooby05]

In 2008, I had bought 15,000 shares at average 60. This was when I had hopes of Tata's coming out winners with their JLR and Nano ventures. There was a thread on this forum talking about the Tata Motors doomsday with the buyout of JLR, and I had said that the Tata's will turn around JLR. I still have hopes also on the Nano!
In the opinion of 'smartcat' I should sell off. Yes I am thinking of liquidating 50%, the question being where does one invest safely?
The present realistic price of Tata Motors should be around 200.

[rrsteer]

I am not very convinced about TML. Their Indian operations is not doing well IMO. If you really look at it, they haven't produced a hit product like Indica again. And given the competition I doubt if it can again.
On the other hand for long term play I would concentrate on M&M. Their stock has actually gone down from 800 level. And this company has cash cows like its UV segment & tractor segment. And in both these segments it would be hard for competitors to surpass it. Maruti is trying so hard to increase its rural sales and this company has ready made rural sales channels. So if M&M launches a small car, I feel it can succeed by concentrating on rural sales only.

[shortbread]

While JLR's amazing come back is propping up TML profits at the moment it was the exact opposite during 08-09.
During this phase of heavy losses coupled by the fact that Mandleson and his labour cronies were dolling out financial help to plenty of incumbent english companies while he openely refused JLR assistance (the bigots cant digest an Indian co. running things), Tata's investment looked like a pear shaped adventure and the media were having a great time laughing at the Indian co.

But they stuck at it, never stopped pushing R&D and throughout this tough phase it was the Indian operations that helped JLR survive. Today JLR is in a strong position and the tables have turned, unsuprisingly the truculent british media want JLR to be independent. The poms wouldnt know how to manage a kebab shop if they inherited one, let alone a carmaker!!!

Tata and JLR operate at two extreme ends of the passenger car market and in very different environments. In a way this is a positive rather than have all the eggs in one basket.

JLR is just at the cusp of its rebirth. The Vogue and Sport are still doing well despite their age, but in a few months the all new models arrive and they will only bring in more numbers. JLR operate one of the chunkiest margins in the auto world and even a slight bump in sales get magnified on the balance sheets. Jaguar will soon have the two seater F type, a new super car with Wialliams and under development is a 3 series rival.
So JLR is strong and safe.

Originally Posted by rrsteer

I am not very convinced about TML. Their Indian operations is not doing well IMO. If you really look at it, they haven't produced a hit product like Indica again. And given the competition I doubt if it can again.

If your are not convinced because of their drop in profits I completely agree.
But as far as numbers are concerned they are selling more than ever before. The UVs now easily clocking 5k+ units consistently, the Nano has crossed 10k, the Indica/Vista/Manza platforms bring in close to 20k, apart from Aria every other model is doing good and consistent numbers. Tata is selling very well but at wafer thin margins.

They are still holding their trumpcard close i.e. the diesel Nano, nobody knows what plans TML has with it but everyone knows its potential. Also if the Safari still does 1k+ units the Storme can at least double that!!

Its a dicotomy where they are shifting a lot of cars but on the other hand there is no doubt their margins are worrying.

Originally Posted by rrsteer

On the other hand for long term play I would concentrate on M&M. Their stock has actually gone down from 800 level. And this company has cash cows like its UV segment & tractor segment. And in both these segments it would be hard for competitors to surpass it. Maruti is trying so hard to increase its rural sales and this company has ready made rural sales channels. So if M&M launches a small car, I feel it can succeed by concentrating on rural sales only.

From the perspective of a car enthusiast in the Indian market yes Mahindra seems to be having a rosy time, dominating the UV and Agri sectors both of which have good margins.

But look outside this scenario and there are questions to be answered:

• Its been 5 years since M&M took over Kinetic and its simply been generating consistent losses. There is a huge supply vaccum for CVT scooters in India but Mahindra is only a miniscule player, actually its share in the scooter market has dwindled from athe decent position Kinetic was in. Its already quit making motorcycles. It only makes sense for them to give up and hand over the production facilities when many of the 2 wheeler makers are looking to set up new factories.
• The HCV venture is still to gain traction. In two years its sold about 1500 trucks despite a huge distribution network and a brand presence.
• Ssangyong is still making losses and also has unresolved labour issues that are boiling over. I still believe it s a very good investment especially due to the technical synergies, global distribution network etc...
• Mahindra has put in a bid for Saab and it looks very likely to win it as well. But for what?!! Saab has no decent product, GM is not cooperating, staff have been laid off, no real R&D strengths (highly overrated). If M&M wins this bid i will only add to the present challenges and also dent its market valuation.

No doubt both the Indian companies have the strengths to come out of these challenges victorious and I am confident they will.

[rrsteer]

Thanks for your post shortbread. That was good insight.

Originally Posted by shortbread

But as far as numbers are concerned they are selling more than ever before. The UVs now easily clocking 5k+ units consistently, the Nano has crossed 10k, the Indica/Vista/Manza platforms bring in close to 20k, apart from Aria every other model is doing good and consistent numbers. Tata is selling very well but at wafer thin margins.

These numbers look good at first glance, but as I said once before they are like ladies skirt- hide more than they reveal. Nano was conceived, built and supposed to be a 25K+ car. Indica range with with five/six different body shape hardly reaches 18k a month. On the other hand the Swift platform clocked around 35 k last month (or probably 30k?) And Sumo is left far far behind by Mahindra UVs. The point is if you look in perspective, they are all under performers, leaving probably Manza aside.

So in my eyes, firstly Tata cars are under performing on the volume front and on top of that, their margins don't excite. Also the segments in which Tata operates is going to see even more intense competition. So if stock markets discount future earnings, I have a dim view of TML's future prospects. A diesel Hyundai i-10 is enough to scare me
(Let me quickly put a disclaimer : My views & perspective strictly, but am open to criticism)

They are still holding their trumpcard close i.e. the diesel Nano, nobody knows what plans TML has with it but everyone knows its potential.

I can tell you this: from our research the problem with Nano is that most people (the public out there) while praise the effort, they don't buy the effort. There is huge skepticism about owning a very cheap car (cheap in terms of cost). And this is not related to a brand. I am no fortune teller. But I take a contrarian position here and say diesel Nano would also probably meet with a rather cold response. But I would say this is more of a gut feel.

Overall, I have just talked about Tata Motors Indian passenger car operations. And I know TML is defined more by its CV operations. But I will refrain to start a debate on that yet.

[Equus]

Originally Posted by scooby05

In 2008, I had bought 15,000 shares at average 60. This was when I had hopes of Tata's coming out winners with their JLR and Nano ventures. There was a thread on this forum talking about the Tata Motors doomsday with the buyout of JLR, and I had said that the Tata's will turn around JLR. I still have hopes also on the Nano!
In the opinion of 'smartcat' I should sell off. Yes I am thinking of liquidating 50%, the question being where does one invest safely?
The present realistic price of Tata Motors should be around 200.

Yes I would have cash out 50%. Might wait for the sensex to hit 18K nearabouts for a short term high.

Instead of directly investing in shares, maybe you can consider mutual funds for the proceeds from this. Offcourse, do a SIP and invest it across 12 months instead of lumpsum.. There are a lot of good ones. If you didnt know, go thru the 5* funds from valueresearchonline.com.

Gold is another good one, but the trouble with gold is - you cant buy and forget. Need to time the selling - it will be key. But I am biased here - I dont invest in gold as there is no concept of balance sheet/profit-loss/etc. Its all speculative as something that takes max $400-odd for an ounce to make sells for $1600-1700.

[Equus]

The golden run from JLR is already factored in the price well. I dont see upside here (offcourse I didnt see upside 1 month ago too - so I could well be wrong again).
Thats the beauty of markets, isnt it? The ultimate high - seller thanks god he sold. The buyer thanks god he bought. Same transaction!

[ACM]

Originally Posted by scooby05

In 2008, I had bought 15,000 shares at average 60. This was when I had hopes of Tata's coming out winners with their JLR and Nano ventures. There was a thread on this forum talking about the Tata Motors doomsday with the buyout of JLR, and I had said that the Tata's will turn around JLR. I still have hopes also on the Nano!
In the opinion of 'smartcat' I should sell off. Yes I am thinking of liquidating 50%, the question being where does one invest safely?
The present realistic price of Tata Motors should be around 200.

Yep while I like you do feel that the Nano will finally come good and the news of Nano Diesel, CNG etc only seems to be indicate positive changes in the numbers.

But on the other hand I do feel that the JLR profits and growth have been over values and that the global market presently is not really that smooth. (Even considering the decently large share of sales from China).

Overall as a company TATA Motors can be expected to do really well in the medium and long term but in the short term as mentioned there could be a downward move on the stock and feel that possibly it may be best to sell a part of it for now and again buy in a the next low.