Tata Motors

[Stockowner]

Tata Motors (NYSE: TTM), established in 1945, is an Indian company with an international presence. The company produce and sell both ordinary cars, trucks and industrial and some military vehicles for troop transportation. It's India's largest automobile corporation.

In the annual report you can see numbers dating back to 1945 with information on how the company has developed. The company also seem relatively shareholder friendly. It's 2006 annual report says: "The Company has not issued any stock options to its Directors/employees".

"On recommendations of the Investors’ Grievance Committee, the Company has taken various investor friendly
initiatives like sending reminders to investors who have not claimed their dues, launching an odd lot scheme,
sending nominations forms, launching a shareholders discount scheme, arranging factory visits, etc. Critical feedback,
complaints and suggestions received from investors are considered and addressed appropriately"

It's P/E is at 15, Price to Cash Flow is at the same level, according to Morningstar. What made me a bit concerned though was that cash flow seems to have been negative in 2006 and 2007, while net income is positive. Is this a genuine concern?

I don't know the numbers for this year.

Tata will probably benefit greatly from India's industrialization and its future as a great power, or even as a superpower alongside China. We're talking about a nation of 1 billion people starting to modernize. In addition to India's market, they are also diversifying geographically, establishing a foothold in South Africa, Spain, Thailand, Korea, and so on. If we buy Tata now, it comes with a 2,2 percent dividend yield, too.

So basically:

* Long track record dating back to 1945
* Comes with a dividend yield
* Will probably prosper greatly from India's growth
* Dominant in India's market (a possible moat?)
* Pricing. The company, as I understand it, produce affordable cars. And it is coming up with this small car that will be the cheapest car ever. (That's a moat right there)


Tata does look tempting. But what are your thoughts? Please be critical and try to shoot down my thoughts about Tata Motors probably being a good company to invest in.

For instance, could it be that companies like Toyota will take over a good share of India's car market? I know Toyota is a classic brand in Pakistan, and BMW is getting very popular there..

And what about its apparently negative cash flow lately?

[Stockowner]

Maybe this should be in the homework examples archive?

[Gunnski]

I do not know where to post this so, I'll follow the thread at least re: TTM. I hope I do not offend anyone.

I do not see much that is tempting about this business. Here is why:

It has traded in a channel (sideways), between $15.00-$20.00, since at least May '07. I would need to see a confirmed breakout above the resistance level of around $20.00.

It is very choppy in key areas like %EPS and %Sales. You are at a disadvantage because you do not have 10 years of data. In some areas you are lucky to get 5 yrs. of available data. I would like to see more consitent & upward trending numbers.

I could find nothing regarding Insider Trading, "no data posted" on this wonderful business. Considering Deputy Chief Manager Prabhat Sinha was just arrested on Tue., this information would be useful.

Where is the Moat? Sure they have enjoyed exclusive market share on their home court, but foreign penetration into the market, will level the playing field. Auto sales in India were up 22.5% last year. Directly tied to their current economy. But, competition is licking their chops to get into the market, with recent change in easing of import restictions. It going to happen. We'll find out if they have a moat.

Yes, they will export their product(s). But, in looking at their product(s), it should stay in India. Especially with rising steel & oil products on the rise. Price to manufacture their vehicles will go up.

I like their cash flow (at least last 5 yrs, thats all I can view), but they have had it there own way for many years.

If they do aquire Jaguar-Land Rover things could get real interesting.

To many unknows for me, does not pass the smell test right now.

[maxedout]

Originally Posted by Gunnski

I do not know where to post this so, I'll follow the thread at least re: TTM. I hope I do not offend anyone.

I do not see much that is tempting about this business. Here is why:

It has traded in a channel (sideways), between $15.00-$20.00, since at least May '07. I would need to see a confirmed breakout above the resistance level of around $20.00.

It is very choppy in key areas like %EPS and %Sales. You are at a disadvantage because you do not have 10 years of data. In some areas you are lucky to get 5 yrs. of available data. I would like to see more consitent & upward trending numbers.

I could find nothing regarding Insider Trading, "no data posted" on this wonderful business. Considering Deputy Chief Manager Prabhat Sinha was just arrested on Tue., this information would be useful.

Where is the Moat? Sure they have enjoyed exclusive market share on their home court, but foreign penetration into the market, will level the playing field. Auto sales in India were up 22.5% last year. Directly tied to their current economy. But, competition is licking their chops to get into the market, with recent change in easing of import restictions. It going to happen. We'll find out if they have a moat.

Yes, they will export their product(s). But, in looking at their product(s), it should stay in India. Especially with rising steel & oil products on the rise. Price to manufacture their vehicles will go up.

I like their cash flow (at least last 5 yrs, thats all I can view), but they have had it there own way for many years.

If they do aquire Jaguar-Land Rover things could get real interesting.

To many unknows for me, does not pass the smell test right now.

TATA was showcased in the IBD in the New America section 4 months ago.
For me it has been down 20% but as of late it appears to be on a run.I believe the institutionals may be getting wind though not positive.

[Stockowner]

It has traded in a channel (sideways), between $15.00-$20.00, since at least May '07. I would need to see a confirmed breakout above the resistance level of around $20.00.

For me, trading or the stock market price is not very important. What is important is the underlying businesses and how cheap the company is.

If the company has traded sideways for some time while growing, it means that the company is getting cheaper, right?

It is very choppy in key areas like %EPS and %Sales.

True, they are choppy. Over the long term the company shows growth though. Still, choppy.

You are at a disadvantage because you do not have 10 years of data.

In the annual report you get data dating back to 1945 up until 2007.

I could find nothing regarding Insider Trading

Yeah, me neither.

Where is the Moat?

Pricing. Just look at this:

India's Tata Motors will on Thursday launch the world's cheapest motor car. Aiming to enable more people in India and other developing nations to move up from two wheels to four, it will sell for 100,000 rupees or $2,500 (£1,277).

BBC NEWS | Business | Tata Motors to launch bargain car


This cheap price will also negatively effect the comfort of the car, but this car, due to its cheap price, will for many be the only alternative.

[joshuat]

But what is their ROIC (I honestly don't know, having not read their annual report)? That is a primary measure of moat. If you have a moat, you can price things to your advantage. No moat, you are scraping along at under 10% with all your competitors.

I'm no fan of the Phil method, but he is spot on in focusing on ROIC. ROIC=moat.

Historically autos are bad investments. The economics may be better in India -labor costs low due to no organized unions - no one else sells such cheap cars, etc. Tell a convincing story where Tata does not face the crushing competition and costs of a Ford, and back it up with the balance sheet and income statement.

[Gunnski]

Any updates on TTM? Maybe it will bounce off the Vol. Bars at the bottom of the chart...?

Click on chart:

[npg]

It's a commoditized business, not a franchise. It may sport a good ROIC for a period of time, but long term their profit margins will either erode or remain thin ---simply because businesses of that kind compete on price. Just look how tough it is for other competitors in that segment and you'll know.

A good ROIC does not equal a distinct competitive advantage, ie moat. However, it is an indicator that the business might have a moat.

I leave it up to you to decide what to do with Tata motors. However, it needs to be noted that not all companies whose prices dive make for a good purchase. This only makes sense for great businesses who do not need to compete on price with their peers and where a dip in the price is usually driven by some sort of irrational behavior. Businesses that compete on price do not have a moat and the price of their shares are continuously under pressure because it is very tough for them to maintain above-average profit margins.

HTH