Tata Motors Case Study

Overview of Tata Motors

Tata Motor Group is India's largest automobile manufacturer by sales, and is a division of the Tata Group (a large Indian conglomerate). Tata Motors was originally established in 1945 and manufactures passenger cars, buses, trucks, tractor-trailers, light commercial vehicles, and construction equipment. Tata Motors sells through more than 1,500 dealers in India, and exports its vehicles under various brand names and partnerships world-wide [9].

While Tata has established a strong brand of their own, they are also aggressive in expanding their global presence through a number of major acquisitions. Most notably they acquired two iconic British brands: Jaguar and Land Rover. By making acquisitions like this, The Company is catapulting itself onto the global stage, and now has operations in the UK, South Korea, Thailand, and Spain.

The growth of Tata Motors, has no doubt, been fueled by the audacious vision of its chairman Ratan Tata. Ratan's dream to provide millions of Indians an opportunity to own a safe and affordable means of personal mobility has not only caused Tata to be successful in India but that has also positioned Tata to be a major player on the world stage [10].

Since Tata Motors Limited is an Indian company, they are cross-listed on the Bombay Stock Exchange and the New York Stock Exchange (NYSE) as an American Depository Receipt (ADR). Their financial performance is generally reported in Indian currency, although all figures in this report have been adjusted to US Dollars based on the relevant exchange rates. Historical exchange rate between the two currencies can be found in Appendix E.

Tata's Recent Performance

Tata's revenue growth over the past few years has been strong. Tata averaged 40.8% [1] growth in the last five years. At times Tata's returns have suffered due to the worldwide economic crisis but overall Tata's returns have been strong. This is likely due to their heavy investment in growing portions of Asia that have been relatively safe from economic downturn.

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Driven by the performance of its luxury brands Jaguar and Land Rover, Tata's most recent performance has beaten the Analysts' estimates. The resulting improved product mix from the acquisition and their expansion into new markets has proved to be successful. China now accounts for 17.2 per cent of JLR's global sales, compared to 13 per cent in the corresponding period a year ago [12].

Tata's performance over the last year has been comparable with its industry peers such as GM and Ford. Hyundai-Kia is another close competitor for the reasons explained later in this report.

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Return on Tata Motors Stock compared to Market

A successful turnaround at Jaguar Land Rover (JLR) coupled with a recovery in the domestic auto markets has been the driving force behind the massive three-year returns posted by Tata Motors. However, cost control efforts, a superior product mix from launches such as the new XJ and Range Rover vehicles, a strong demand in developing markets and a favorable exchange rate environment aided the turnaround of Jaguar/Land Rover.

Though the stock carries a beta value of 2.27, the returns from the stock over a long term period are predicted to be favorable due to the growth exhibited by the company in last several years. Appendix G shows how the slope of their returns (beta of 2.27) compares with various levels of hypothetical market return (assuming a return of 0% when market return is 0%). The high beta indicates that there could be significant variation in the stock price of Tata as compared with variation in the overall market.

SWOT Analysis: Strengths

Tata Motors has a strong market presence in India. They have an "overall market share of 24.3% of all four-wheel vehicles sold in India in FY 11" [2]. Additionally, it is "...the world's fourth largest truck manufacturer and second largest manufacturer of buses" [1]. Tata Motors is among the leading companies in both the commercial vehicle segment (#1 in India) and passenger vehicles (#2 in India [1]).

Additionally, Tata Motors has made a conscious effort at strengthening its image as a global brand through various global acquisitions. In recent years, Tata Motors has acquired various other global automotive companies:

* Acquired Daewoo Commercial Vehicles Company in 2004, the second largest truck manufacturer in Korea. This acquisition added to its existing strength as India's largest truck manufacturer and gives them a technological edge against its domestic truck manufacturing rival Ashoka Leyland.

* In 2005, it gained controlling rights on the company Hispano Carrocera by acquiring 21% of the company. In 2009 it acquired the remaining 79% of the firm.

* Tata Motors joint venture with Marcopolo, a Brazalian auto company, introduced low-floor buses to India. This was a big hit in the Indian public transportation system.

* In 2010, Tata Motors acquired an 80% stake in Trilix, an Italian based design and engineering firm. Tata Motors intends to strengthen its styling and design and meet global standards with this acquisition.

* With the acquisition of Jaguar and Land Rover brands in 2008, Tata Motors captured the world's attention as a global name in the automotive industry.

These acquisitions contribute to Tata Motor's global brand initiative and strengthen its technological capabilities in order to compete with domestic competitors.

As well, Tata Motors fully integrated business plan allows it to exercise significant "control over its value chain and in turn helps decrease its production and distribution costs" [1]. In addition to its many plants and R&D centers in India, it also has manufacturing plants in South Korea, Spain, and the UK. These plants primarily produce light, medium, and heavy commercial vehicles. Utility vehicles and passenger cars are also manufactured at these sites. Tata Motors and its subsidiaries are involved in providing engineering services and automotive solutions, as well as automotive component manufacturing and supply chain activities. The company also "machines tools and [develops] factory automation solutions, high-precision tooling and plastic and electronic components for automotive and computer applications" [1]. Tata Motors also has its own captive forge and foundry facilities that allow it to forge its own steel and provide its own alloy iron casting for their vehicle manufacturing plants.

Tata Motor's Engineering Research Center (ERC), established