Fundamental Analysis of Tata Motors #StockScoreCard

Tata Motors is an Indian automobile manufacturing giant who makes everything from the cheapest car to trucks to military vehicles! They even own Jaguar and Land Rover!

If you judge by the sales revenue, Tata Motors is much bigger than Maruti Suzuki!!!

Is it enough if a company is big and has more sales??
Is it enough if a company makes great cars??

Tata Motors is a classic case to prove just the opposite!!
Keep reading,..

Fundamental Analysis

1. Growth Story

Tata motors has been aggressively launching new passenger vehicles in India hoping for a turnaround from a record loss-making track record.

On the other hand, Jaguar Land Rover has been investing heavily on new models and has promised to the goal of electrification of every single model by 2020.

Just remember couple of important facts:
More car models DOES NOT mean more sales!
More sales DOES NOT mean more profits!

This is exactly what's happening with Tata Motors.

Last 5 years, there has been a lot going on with respect to the roadmap, management has been very optimistic about the new car models being launched. Few of them have surprised with some very good sales numbers.

But, twist in the story is that profits are declining!!



Reason 1:  There is too much money being spent on Research & Development for electrification (which by itself is a huge gamble)

Reason 2: Due to fierce competition, the profit margins have taken a big hit

Reason 3: Impact of UK Brexit and constant trade wars threats (between US vs EU, China and India) have impacted the macro economics, especially when a company like Tata Motors who have presence  in all these 4 regions!  (Luck couldn't get any worse! 😞 )

Hence the profits are heading south.

Take a look at below table (first line shows sales data and last line indicates net profits)

    2. Shareholding Pattern

    Promoter's high stakes (42%) in the company indicates their high confidence for the road ahead, which is good to know.

    3. Debts

    Tata Motors currently has extremely high debts (loans)!!

    Debt/Equity Ratio currently being 1.28 is not so positive! (lower the better, ideally less than 1 or 0.5 is preferable)

      4. Return on Equity

      Return on equity is not bad, but not great either: 12.83 (Higher the better, ideally around 18-20 is great)

      You can check out more info here: link 

        5. Valuations

        • Current Stock Price: 251
        • Earnings (last 4 quarters): 6.24 + 3.51  + 7.30 + 9.36 + 12.64 = 39.05
        • PE Ratio: 8945/225.62 = 6.4

        Extremely cheap, but is it worth it??


        Although valuations look very cheap, given the fact that company has quite a bit of global exposure and current global uncertainties are spot on to affect the company, it seems to be a bit risky bet on the stock. 

        Also, they don't have a proven record of growth story in terms of profits.

        Personally, I would not bet my money on the stock, unless there is a clear turn around visible on the Profits and the Balance Sheet!!!

          FYI,  "Stock Score Card" is an special blog series where we will try to share the fundamental analysis of an individual stock based on the five multi-bagger magic mantras (link)

          Check out all "Stock Score Cards" here: link

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