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Tata Motors is a household name in India, with most Indians having used, or at least seen Tata trucks or buses once in their lives. Tata Motors has become the leader in the market for commercial vehicles (CV) segment in India. It had not been as innovative in the passenger vehicle market especially after Nano, with consumers complaining of uninteresting models and quality issues, but that seems to have changed in recent times. Tata Motors also owns two iconic brands, Jaguar and Land Rover (JLR) which came with the acquisition more than a decade back.
What is the outlook for the business?
CV business looks strong in India as it is set for a revival after a few years of being in decline. Industry volumes stood lower in the fiscal year 2021 than they had been in any of the past 18 years. However, as the economy opens up, the demand for CVs is only set to grow further.
Tata Motors has also brought a massive change to their passenger car fleet. Consumers have largely appreciated the overhaul by Tata Motors, who turned their losses in FY 2020 to profits in FY 2021, as well as gaining around 6% more of the market share.
In the Electric Vehicle market, Tata Motors has been an early mover and has scaled up well with a strong suite of products at competitive prices. Tata Motors dominates the EV market with 70% market share. Their key products, Tigor EV and Nexon EV, have been the front runners, with Tata Motors selling in 60 cities across India. This is supported by a public charging network of 700+ chargers across the country. The investment of USD 1 Billion by TPG has set a healthy benchmark for the valuation of Tata’s stake in this business.
JLR has a strong order book of around 3 months and also has low inventory levels with its dealers. New product launches – Range Rover and Range Rover Sport will add additional volumes and support profitability too.
So, what is our view on company valuation?
Stock has already run up more than 100% in the last year on the back of expectations of improved performance. Investors should evaluate the Company from a long term investment perspective, especially as the valuation metrics are still cheaper than its peers.
As for the risks to this analysis, it must be noted that both the CVs, and the JLR businesses are cyclical in nature. The turnaround in the business is also worrisome as the company has suffered consistent losses since the fiscal year 2019. Moreover, in the Passenger vehicle business, a constant slew of good products is important and it seems too early to declare victory for the Company.
So, would you invest in Tata Motors?
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