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 :
| Capitalisation | Rs.44000 CR |  |
| History of Consistently Increasing Sales, Earnings & Cash Flow | No |  |
| Durable Competitive Advantage | Low | |
| Future Growth Drivers / Sector Growth | Low | |
| Conservative Debt (long term debt < 3 Net Profit) | High Debt | |
| Debt Equity Ratio, Current Ratio | Debt Equity Ratio is 2.1, Current Ratio is 1.04 |  |
| Return on Equity must be Above Average | -16% |  |
| Low CAPEX required to maintain current operations | No |  |
| Inventory Turnover Ratio, Debtor Days, ROCE | 4.40, Debtor days consistent, ROCE : -0.37% | |
| Management is holding / buying the stock | Promoter holding is at 42.3% & Consistent | |
| Market Price < Intrinsic Value | Overpriced Intrinsic Value Calculator |  |
| Stock Price is consolidating (now) | Yes |  |
| Stock Price is growing in past years along with EPS growth | Declining | |
| Consolidated PE, PB Ratio, PEG Ratio | Low PE, but Debt is high. |  |
| Cash Flow Positive, Net Profit % greater than 8% | Cash Flow: Negative Profit: Negative | |
| Paying Dividends, Tax | Dividends: 0 Tax: Low | |
| EPS Growth Rate | EPS has tremendously declined |  |
| Jump in Trailing Result EPS | Yes | |
| Jump in Quarterly Result EPS | No | |
| Expected Gain in 5 Years | Only 2X gain is possible once Covid disappears & automobile growth is back. | |
| Price Movement Graph, 52 Week High & Low | Okay | |
| Volume Analysis | Okay | |
| Power of Brand | High | |
| Corporate Governance, Reputation of Leaders | Good | |
| Fraud reported | No | |
Positives for Tata Motors Stock
- Increase in demand of Passenger Vehicles in India is expected
- Sales of JLR is expected to take a turn around in FY-21
Negatives for Tata Motors Stock
- S&P Global Ratings downgraded Tata Motors from stable to negative due to slow recovery post COVID-19
- Recovery of the automotive industry can get disrupted & its negative impact on Tata Motors’ earning could be observed for the next 12-24 months.
- No new products lined up in Electric or eco friendly variants
- Consistent increase in debt due to underperforming JLR & International uncertainties.
- Delivered poor growth in the past 5 years.
- Earning Per Share (EPS) has been constantly declining YoY since 2015
- Cash Flow has been on a constant decline since the last 5 years
- 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.
NOT A MULTIBAGGER
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