Tata Motors

Luke Brown And Shrenik Jain

Tata MotorsLuke Brown and Shrenik Jain

Company Overview

◦ Indian automotive conglomerate◦ 287th by size on Global Fortune 500

◦ 4th and 2nd largest manufacturer of buses and

trucks

◦ 3rd largest sales and service network in India

◦ Owner of Jaguar Land Rover since 2008

◦ NYSE: TTM (ADR)◦ IPO in 2004

◦ FY 2014-15 revenues of $42.4 billion

◦ Last Close: $30.01

Investment Thesis•Dramatic overreaction ignoring fundamental market facts due to events in China

•New heavily advertised product line tailored to segment preferences will capitalize and expand on brand strengths

•Stable cash flows in core Tata Motors as well as synergies with other Tata groups mean continued Tata investment in cutting edge JLR tech

•High fixed costs mean anticipated sales growth in luxury segments of NA and India will increase margins

•Strong comparable valuation on P/E basis

•Substantial upside in DCF model with conservative model drivers

Industry Overview: Automotive

Traditional Characteristics:◦ Highly capital and labor intensive

◦ Razor thin margins for OEMs

◦ Highly Cyclical (annual and non-annual)

Trends:◦ Increased demand for tech features in cars

◦ Increased regulatory pressure

◦ Global outlook is bullish, but uneven

Segment Overview: LuxuryCharacteristics:◦ Lucrative, luxury brands are often a minority of sales

but majority of profits

◦ Segment drives R&D for industry as whole

◦ Brand strength is key and provides pricing power

◦ Generally made up of “wow” and “prestige” factors

◦Trends:◦ Surging demand driven by APAC, NA

◦ Huge appetite for SUV’s and “entry-level” offerings

Stock Performance vs S&P500

Performance vs Peers/ Industry Average

Recent News (Q1, Q2)

Obstacles with Jaguar Land Rover:• Losses in China and Russia from 2014

• Greater revenue but lower EDITDA

• Exceptional Charge of £245m from Tianjin port explosion

TTM as showed strong fundamentals:• Tata Consumer vehicles up 5.2% from last year• M&HCV Segment on track to grow

volumes 35.3% yoy

Tata Motors Business Breakdown•Massive Indian automotive conglomerate:

• Traditionally a passenger automotive and locomotive company

• Many acquisitions in different BRICS markets

• Major Indian builder of buses, construction equipment

• Recently getting more involved in Indian defense industry

• Both R&D and manufacturing heavily distributed globally

•Member of the Tata Group

•Majority of valuation (75-90)% from JLR

Global Presence

Jaguar Land Rover Overview•Disgraced brand purchased from Ford for $2.3b

•Jaguar brand rebuilt from ground up, starting with new F-type

•Land Rover brand catapulted to immense popularity with segment tends

•TTM investment(>£10b ) into R&D has had results

• Innovative aluminum frames reduces weight on all cars

•Distributed manufacturing base in target markets keeps costs down

•Brand has unique combination of history yet exclusivity

• New models will lead to dramatic revenue growth

JLR Sales Breakdown

JLR By Region

Strong New Product Line•Exciting new models the logical extension to the resuscitated brand• Jaguar XE: Jaguar’s first entry level sedan in over a generation

• Jaguar F-Pace: First-ever Jaguar SUV, expected to capitalize on market trends, utilizes existing platform

•Land Rover Sport Update: Bestselling luxury SUV

•New Land Rover Evoque Coupe: Convertible SUV hybrid

•Continuing updates to core luxury products (XJ, XK)

The Case for a Jaguar SUV

Two unprecedented SUV offerings

Jaguar F-Pace Range Rover Evoque Coupe

The XE: Capitalizing on a Stellar Brand•Jaguar’s first “entry level” luxury sedan MSRP

• Begins at $35k

•Sub segment is vital for brand image and revenues

• See: BMW 3 series

•Will be released next year in the US, has already exceeded expectations in a sluggish European Mkt.

•Rave Reviews:

• “Civilized yet fun. Great Tech options and upmarket standard features.” – AutoReview (250,000+ views)

• “Rides more comfortably and handles better than the BMW3 (Carbuyer (250,000+ views)

•Reviews will only go up as this is first iteration

Surging Indian Luxury Market

Room for Jaguar to Grow

• Indian luxury market has posted very

solid growth numbers

• India as a nation is much early on

“emerging market” explosion curve

(90% of GDP still agriculture)

• Indian luxury car market has youngest

average buyer in the world (35 vs 43-

45)

• Receiving strong encouragement from

Modi’s BJP

Healthy North American Growth•North American appetite for luxury goods has seen a robust recovery recently

•Commuter-friendly XE and F-Pace are tailored to increase market share in the US

•Reviews demonstrate brand offers quality and lower prices (for XE) in ruthlessly competitive segment• History (Audi A4, Lexus ES) predicts growth

•Car and Driver predicts “F-Pace will become Jaguars best selling model very soon”

•Massive marketing effort to soon pay dividends• See: James Bond, Spectre

Classic Market Overreaction in China

•Undeniable recent slowdown in China has heavily depressed global markets

•Ignores fundamentals such as the demands of rapidly growing 300m+ Chinese middle class

•Product line of luxury SUVs and the new XE tailored to meet demands of a upper middle class as opposed to the ultra-wealthy

•Market overreaction to sudden financial slowdown in an emerging non-western market incredibly grounded in precedent

MGMT•Tata Motors has had consistent, growth-orientated leadership since the 1940s• Allows TTM to leverage synergies such as Tata Steel and Tata Finance

•TTM has allowed JLR to operate independently, avoiding mistakes of Ford, GM• Has revived a global brand in the wake of the Great Recession

• Preserved unique British culture

•TTM CEO: Cyrus Pallonji Mistry • Industry insider with strong ties to Tata family

•JLR CEO: Dr. Ralf Speth • Has overseen JLR’s resurgence since 2010

Risks:

•Majority of valuation derived from JLR:• New product lineup not received well by market• Very Sensitive to Demand in China

•Currency Issues can drastically affect bottom line of this heavily multinational company

•Inherent volatility in investor sentiment of a foreign multinational (Beta ~2.35)

•Standard industry risks

Risk Mitigation •Majority of valuation derived from JLR: -> Normal for Industry

•New product lineup not received well by market -> Rave reviews and products tailored to

market demand

•Very Sensitive to Demand in China -> Chinese market is fundamentally strong, rising

growth rates in India, North America

•Currency Issues can drastically affect bottom line of this heavily multinational

company -> Business is highly diversified, value is universal

•Inherent volatility in investor sentiment of a foreign multinational -> Stable,

diversified, Cash flows

Risk Mitigation Part II•Stable cash flows in industries such as defense and commercial vehicles, as well as relatively low leverage (D/E ~1.0) gives MGMT flexibility to raise cash

•Also well insulated from industry concerns with regulation, tech features, and overcapacity due to international focus and premium nature of JLR

Spread Between Currencies, Listings

CatalystsHealthy consumer demand from China Recent super singles day (11/11/11) information shows Chinese consumerism is growing and well

Chinese Stock market not indicative of underlying Chinese demand

Strong sales from upcoming JLR product lineup Lineup is uniquely targeted at market preferences

Strong consumer facing reviews in a segment where reputation is everything

Inevitable increase in wholesale volume will further increase margins

Market acknowledgment of effects of superior technology

Anything Pro-India, BRICS are heavily driven by qualitative sentiment World is pro-Modi; see Modi’s reception in UK, US

Thesis Restated•Chinese demand for JLR products is independent of current market depression

•Upcoming product line has been specifically designed and marketed for current market conditions

•Strong support network from TTM core and other Tata companies guarantees future R&D investment in JLR

•Growth in sales will help margins and allow for continued margins expansion

•Clearly trading at a discount with regard to comparables

•Extremely conservative DCF projects large upside

Appendix Slides [Insert $$$ Here]

Accounting Difficulties•Only annual data was filed with the SEC

•Quarterly data was not available in an audited, compatible format with financial statements

•Take information not directly from the company with a grain of salt

Tata Conglomerate