Tata Motors Case Study

Published: 2021-06-29 07:00:20
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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.

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.
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.

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