Tata Motors’ India Business Is Heading In A Positive Direction
Only ~10% of Tata Motors‘ (NYSE:TTM) valuation comes from the standalone business, as per our estimate. At the helm of Tata’s problems in India remained lower-than-expected sales in the passenger vehicle and light commercial vehicle (LCV) segment till the last year or so. Sales in India itself form over 40% of the net volume sales for Tata, however, contribute lower to the overall revenue and even lower to the valuation, because of the lower model prices compared to that of Jaguar Land Rover, which forms almost 90% of Tata’s valuation. In addition, the business in India is also not as profitable as JLR and is not expected to grow by as much as JLR’s estimated growth going forward.
However, the India business has been picking up for Tata Motors in recent times, buoyed by growth for the very segments that were struggling last year — passenger cars and LCVs. Tata’s domestic sales through the April 2015-March 2016 (fiscal 2016) period remained flat compared to the year ago period. This was still better than the de-growth the automaker was witnessing in the two fiscals before that, but in the context where the Indian automotive market was growing at a brisk rate, Tata’s performance appeared seemingly weak.
Things have turned around now, as seen from the table.
- Tata Motors Stock Up After Announcement Of Investment In EV Business, Will It Sustain?
- Will Tata Motors Achieve Pre-Corona Stock Price?
- Can Tata Motors Stock Grow After A Slowdown Warning?
- Is Jaguar Land Rover 50%, 70%, Or 80% Of Tata Motors?
- Why Tata Motors Stock Has Rallied 30% Over The Last Week
- How Does Tata Motors Compare Against A Giant Like Toyota Motors?
On the back of strong sales for the new hatchback Tiago, Tata Motors managed to grow passenger car sales almost 12x that of the overall market in India. Tata’s market share was sequentially falling till the start of 2015, and as of June, the company was at number five in passenger cars with 5.7% market share. Launched in April 2016, the Tiago sold 4,205 units in June, up 22% more than the previous month’s sales, and forming ~36% of Tata’s India passenger car sales. The Tiago is a critical model for Tata, since the hatchback segment forms close to half the net passenger car sales in the industry.
On the other hand, sales in the LCV segment have also picked up for Tata after falling 11% in the last fiscal. Much of the weakness in LCVs was associated with the low demand. Industry-wide sales declined last year as demand for these vehicles used for intra-city transport remained tepid. Within this segment, Tata Motors also lost some of its stronghold. In fact, Mahindra & Mahindra surpassed the automaker last year in terms of unit sales of LCVs, raising its market share to over 42%, compared to Tata’s share of roughly 37%. The loss in volume share for Tata seemed even more dramatic when it is considered that the company held an almost 50% share in this segment in fiscal 2014 (ended March). But Tata looked to stimulate demand with the launch of the smart pick-up Tata ACE Mega, with a rated payload of one ton, and improve competitiveness in one of the new segments within LCVs that has arisen and is drawing more customers. Tata is also looking to expedite expansion of its dealership network and improve its general presence in South India, where the company faces stiff competition from Ashok Leyland.
The growth in the LCV segment was also imminent and linked to the growth in the medium and heavy commercial vehicle (M&HCV) segment. The uptick in the infrastructure sector caused a rapid rise in sales of M&HCVs, which are used for inter-city transport. Once goods arrive at certain key hubs through trucks, they are transported to surrounding areas in LCVs. The growth in M&HCVs trickled down to the LCV segment, boding well for Tata Motors as well.
The only segment where Tata Motors is struggling a lot is utility vehicles. This could change soon with the entry of the Crossover-SUV Tata Hexa, which will replace the Aria, and the compact SUV Nexon, which will be launched in the new budding segment of compact utility vehicles. The Hexa is expected to be launched in October while the Nexon is expected to be launched in the first quarter of 2017.
Have more questions on Tata Motors? See the links below.
- Tata Motors’ 50% Drop In Profits In Q1 Is Not All Bad News
- Brexit Could Be Good Or Bad News For Jaguar Land Rover
- New Compact Models Boost Jaguar Land Rover’s First Half Volumes
- Tata Motors Rides On Strong Q4 Performance By Jaguar Land Rover To Boost Fiscal 2016 Results
- Jaguar Land Rover Steps Up Unit Sales In Crucial Markets
- How Will Tata Motors’ Valuation Be Impacted If Jaguar Land Rover Sells Fewer Cars Than Estimated?
- What Will Be The Jump In Tata Motors’ Valuation If Jaguar Land Rover Sells More Cars Than Expected?
- Where Does Jaguar Land Rover Stand Relative To The German Top 3 In Crucial Markets?
- What’s Tata Motors’s Fundamental Value Based On Expected Fiscal 2016 Results?
- How Has Tata Motors’s Revenue And EBITDA Composition Changed Over FY12-FY16?
- By What Percentage Have Tata Motors’s Revenues And EBITDA Grown Over The Last Five Years?
- What Is Tata Motors’s Revenue And EBITDA Breakdown?
- Where Will Tata Motors’s Revenue And EBITDA Growth Come From Over The Next Three Years?
- Why Jaguar Land Rover Forms More Than 90% Of Tata Motors’ Valuation
Notes: