What does Tata Motors future hold ?

Note: This report is NOT A MULTIBAGGER Report

Tata motors has always been India’s first choice since 1988, however with increase in competition & market saturation it has seen a constant decline since 2017.

Since 2017 we have seen a sharp decline in Tata Motors stock price from Rs.523 to Rs.138 in October 2020 which is a fall of over 70%.

Hence, one can imagine how cautious shareholders & investors need to be.

In this article we at Futurecaps have tried to help readers understand Tata Motors stock’s future & analysed its potential with legendary Warren Buffet’s investing strategy.

About Tata Motors

Formerly know as Tata Engineering & Locomotive Company, Tata Motors was founded in 1945 as a locomotive manufacturing company.

The multinational company is headquartered in Mumbai with products including passenger cars, trucks, buses, sports cars, construction equipment and even military vehicles.

With manufacturing establishments spread across the globe, Tata Motors has plants in Jamshedpur, Pant Nagar, Lucknow, Sanand, Dharwad & Pune.

Moreover, its overseas expansion includes plants in Argentina, South Africa, Great Britain & Thailand.

In 1954 Tata Motors launched its first commercial vehicle & in 1991 it launched its infamous Tata Sierra entering in passenger vehicle market.

The breakthrough came during 1998 when the company launched its first completely indigenous passenger car that dominated the Indian passenger vehicle for many years.

Natarajan Chandrasekaran took over as chairman of the company in the year 2017 & increased its Utility Vehicle to over 8% in Financial Year 2019.

Following are the Checklist parameters :

CapitalisationRs.44000 CR
Tata-motors-stock-analysis
History of Consistently Increasing Sales, Earnings & Cash FlowNoTata-motors-stock-analysis
Durable Competitive AdvantageLowTata-motors-stock-analysis
Future Growth Drivers / Sector GrowthLowTata-motors-stock-analysis
Conservative Debt (long term debt < 3 Net Profit)High DebtTata-motors-stock-analysis
Debt Equity Ratio, Current RatioDebt Equity Ratio is 2.1, Current Ratio is 1.04Tata-motors-stock-analysis
Return on Equity must be Above Average-16%Tata-motors-stock-analysis
Low CAPEX required to maintain current operations
No
Tata-motors-stock-analysis
Inventory Turnover Ratio, Debtor Days, ROCE4.40, Debtor days consistent, ROCE : -0.37%Tata-motors-stock-analysis
Management is holding / buying the stockPromoter holding is at 42.3% & ConsistentTata-motors-stock-analysis
Market Price < Intrinsic ValueOverpriced Intrinsic Value CalculatorTata-motors-stock-analysis
Stock Price is consolidating (now)YesTata-motors-stock-analysis
Stock Price is growing in past years along with EPS growthDecliningTata-motors-stock-analysis
Consolidated PE, PB Ratio, PEG RatioLow PE, but Debt is high.
Tata-motors-stock-analysis
Cash Flow Positive, Net Profit % greater than 8%Cash Flow: Negative Profit: NegativeTata-motors-stock-analysis
Paying Dividends, TaxDividends: 0 Tax: Low Tata-motors-stock-analysis
EPS Growth RateEPS has tremendously declinedTata-motors-stock-analysis
Jump in Trailing Result EPSYesTata-motors-stock-analysis
Jump in Quarterly Result EPSNoTata-motors-stock-analysis
Expected Gain in 5 YearsOnly 2X gain is possible once Covid disappears & automobile growth is back.Tata-motors-stock-analysis
Price Movement Graph, 52 Week High & Low
Okay
Tata-motors-stock-analysis
Volume Analysis
Okay
Tata-motors-stock-analysis
Power of BrandHighTata-motors-stock-analysis
Corporate Governance, Reputation of LeadersGoodTata-motors-stock-analysis
Fraud reportedNoTata-motors-stock-analysis

Positives for Tata Motors Stock

  1. Increase in demand of Passenger Vehicles in India is expected
  2. Sales of JLR is expected to take a turn around in FY-21

Negatives for Tata Motors Stock

  1. S&P Global Ratings downgraded Tata Motors from stable to negative due to slow recovery post COVID-19
  2. Recovery of the automotive industry can get disrupted & its negative impact on Tata Motors’ earning could be observed for the next 12-24 months.
  3. No new products lined up in Electric or eco friendly variants
  4. Consistent increase in debt due to underperforming JLR & International uncertainties.
  5. Delivered poor growth in the past 5 years.
  6. Earning Per Share (EPS) has been constantly declining YoY since 2015
  7. Cash Flow has been on a constant decline since the last 5 years
  8. Consistent widening of Net Loss & Revenue drop

Conclusion

With focus shifting towards electric & eco-friendly automotive cars, passenger as well as commercial, Tata Motors desperately needs to adapt to the changing the market.

If not taken into consideration, Tata Motors stock could see a further decline due to the new innovative entrants in the International markets.

Moreover, our research team at Futurecaps estimate a further decline in the company’s earnings & revenue due to the Covid-19 pandemic & global impact on the economy.

Going forward it can be an extremely challenging times for Tata Motors & we suggest investors to stay wary of Tata Motors stock.

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