Tata Motors – Stock Analysis| Highlights of Tata Motors AGM

Reasons Behind the Recent Attractive Rally in the Stock

Introduction

Tata Motors Ltd posted an attractive rally recently with stock delivering ~120% returns in a span of 5 months. Let us take a look at the reasons behind this rally. In this blog, we will discuss the highlights of the recent 75^th AGM of Tata Motors.

Highlights of Tata Motors AGM

Tata Motors on the path to become a debt free company

• Currently Tata Motors have a debt of INR 61,900 crore. In this quarter (Q1FY21), company raised 30% of debt i.e INR 20,000 crore.
• This is mainly because of the issues automobile sector is facing such as:
  • Lock down due to COVID-19 pandemic has taken a huge toll on company’s sales and operations.
  • Shift from BS-IV to BS-VI emission norms required high capital investment.
• Thus, currently the main focus of company is to improve its profitability and become debt free in next 3 years.
• Company will start paying dividends to its shareholders once it starts earning positive cashflows.

Key Challenges faced by Tata Motors

• As said earlier, Tata Motor’s domestic sales were impacted by 80-90% due to the COVID-19 pandemic.
• Jaguar Land-Rover (JLR) faced downside pressures from both the major markets i.e China and Europe.
• Also the trade war tensions between China and entire world may hamper the sales as China is a major market for JLR.
• Although the company has employed some turn around strategies for China specific businesses, how things will turn out in next one year will be the thing to watch out for.

How is the company treading its way to become a zero debt company?

• Cost Cutting measures
  • Company has dropped its investment by 50% in FY21.
  • Tata Motors has planned a Charge Plus Program at JLR which is aimed at saving net £ 6 billion in next 2.5 years.
  • This £6 billion cost saving will be mainly achieved from £ 2 billion improvements in cost and profits and another £4 billion from investment reduction and improvement in working capital.
  • For the domestic business as well, company has a savings target of INR 6000 crore for FY21 and capex is already reduced from INR 4,500 crore to INR 1,500 crore in FY21.
• Improvement in Earnings
  • Company has given optimistic commentary about domestic Passenger Vehicle business, which is expected to start generating positive EBITDA at the end of FY21.
  • JLR is also expected to break-even by Q2FY21.

Development in Electronic Vehicles

• Company has already announced partnership with Tata Power in Aug’19 in a move to stay ahead of its competitors.
• Under this partnership, Tata Power has installed 300 fast charging stations across major metros like Delhi, Mumbai, Pune, Hyderabad, etc.
• Overall Tata group’s support will be crucial in reviving Tata Motors back on track of profitability.

Shareholding pattern

• As we can see, retail investors shareholding has increased from 24.24% in Mar’20 to 28.6% in June’20.
• However, company also has decent institutional holding as seen from the shareholding pattern.

Silver Lining for Tata Motors

• Company’s recent new product launches like Altroz, New Nexon and Tiago have got positive response in the market and it has also witnessed increased demand for New Harrier.
• These new launches indicate that the company is trying to re-image itself in the passenger vehicle segment and it is gaining good traction.
• Tata Motors is also taking care of customer’s financing requirements and hence have auto financing agreements with NBFCs and Banks.
• Significant rise in market share of Medium and Heavy Commercial Vehicles (MHCV) from 57.4% in FY20 to 71.8% in Q1FY21.
• Passenger Vehicle market share has also jumped from 4.8% in FY20 to 9.5% in Q1FY21.
• However this increase is mainly because of scattered sales and this sudden rise in market share does not seem to be sustainable. It is best to analyse the market shares after the COVID pandemic.