Tata Motors is a $45 billion organisation and a leading automobile manufacturing company in India. It’s engaged in manufacturing of cars, SUVs, trucks, buses and defence vehicles. The company is part of Tata Group founded by Jamsetji Tata in 1868. After becoming one of India’s largest automobile manufacturer, Tata Motors is gearing up to embrace the future of e-mobility solutions.
Established in 1945, the automobile manufacturer has auto manufacturing and assembly plants. Not only in India as but also in Great Britain, Argentina, South Africa, and Thailand. In 2008, Tata Motors bought Jaguar Land Rover from Ford catering to the luxury car segment. The company is listed on :-
- the National Stock Exchange of India (NSE)
- Bombay Stock Exchange (BSE)
- New York Stock Exchange
A worthy investment is when an average investor makes money in a stock. Secondly investor are also ready to hold the stock without selling it at higher rates. Before investing in a Tata Motor share for a long-term return, let’s analyse the financial performance of the company.
For the financial year ending 31 March 2018, Tata Company reported that its revenue grew by 9% to stand at Rs.2,94,243 crore. While its Profit After Tax (PAT) significantly rose by 20% to stand at Rs.11,155 crore year-on-year. This was aided by the strong turnaround in the domestic business of the company. While the revenue of its luxury car subsidiary Jaguar Land Rover (JLR) rose by 6% to stand at 25,786 million sterling pounds. The PAT of the subsidiary was down by 5% to stand at 1,536 million sterling pounds as its free cash flow. For the said fiscal, was negative to stand at Rs.11,191 crore attributed by higher investments, lower operating profits coupled with unfavorable working capital.
In the Q1 FY19 results, Tata Motors reported a consolidated loss of Rs.1,863.57 crore. As against a net profit of Rs.3,199.93 crore in the year-ago quarter. This was primarily due to the losses incurred at its UK subsidiary JLR as it posted a loss of 210 million sterling pounds. That said, its Indian operations, the standalone revenue rose by 83% year-on-year to stand at Rs.16,830 crore, while PAT stood at Rs.1,188 crore.
Share Price Trends in 2018
The Tata Motors share price in the last six months has not been encouraging. It is mainly affected by the losses posted by its UK subsidiary JLR. The UK firm is being dragged down by several challenges in major markets such as:-
- United Kingdom
The performance of Their shares has moved upwards since the beginning of 2016. To Touch all all-time high of Rs.588.70 in the month of September of the same year. This translates to more than 20% incline on returns over the course of the year. In 2017, the stock reflected a downward trend but didn’t fall below important levels to be alarmed about. At the end of 2017, the stock price of the company stood at Rs.418.60.
In 2018, the stock price of Tata Motor at the beginning of January was Rs.424.45. It declined to Rs.267.50 by the end of August. The drop in points was due to the free cash flow for its JLR unit. That said, JLR plans to invest 4.5 billion sterling pounds for the financial year ending 31 March 2019 and will continue to infuse the same amount until 2021.
Are Tata Motor Shares Worth Holding for Long-Term Returns?
While the stock trends have not been robust for investors and the company alike, the company’s domestic business has been more than estimates by analysts. It has gained market share in the Commercial Vehicle (CV) segment after 7 years and second year in a row for the Passenger Vehicles (PV) segment. Its domestic business’ improved profit and cash flow delivery is mainly attributed to strong volumes and cost reduction efforts.
After 5 years, the company has delivered positive free cash flow of Rs.1,339 crore for the fiscal ending 31 March 2018. This was achieved with new and exciting product launches in the domestic market. The robust performance of its domestic business reflects the results of the company’s strategies of
- filling portfolio gaps
- Cost reduction efforts
- The improvement of the reliability of their supply chain management.
The company’s only focus would be its JLR’s performance in the international market. However, with an investment of 13.5 billion sterling pounds (about Rs.1.2 lakh crore) in the next three years and subsequently, the company is looking to target 12% to 13% of turnover. The investment will be made on developing new products, technology, capacity with a considerable amount of it on electrification and on a new vehicle platform. This is expected to enable Tata Motors to be at the forefront of disruption in the international automobile industry.
The decline in the Tata Motor shares in 2018 was primarily because JLR’s increased CAPEX plans. This led investors to panic selling and scrip to drop significantly as they were worried about the company’s cash flow and top line.
Thoughts About the Tata Motors Shares
Technically, the share price of Tata Motor is currently weak; however, there’s no confirmation if it will bottom out immediately. With the domestic business on track in terms of financial and market share, the only aspect that Tata Motors needs to focus on is the performance of its UK subsidiary, JLR. This aspect has been well addressed by the management team by infusing about 4.5 million sterling pounds every year until 2021 towards technology and the expansion of its capacity and portfolio.
The company also has bagged defense orders through its commercial and utility vehicles segments in the domestic market. While its exports seem to be positive as its well-positioned geographically to take advantage of the strong infrastructures in Asian markets, which are being modernized.
For investors looking to invest in Tata Motor shares for long-term returns, the company is weathering the storm – read JLR – before it can start offering higher returns. With a strong backing of Tata Group and its management team, the company has a strong future in terms of business as well as for its investors and shareholders.
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