EUR 42.72 For Business Accounts Only

Tata Motors: A Tesla Capex

We initiate our coverage on Tata Motors Limited (“TM”) with a NEUTRAL recommendation on all TMIN complex on the following:

(1) The lack of TMIN’s attractiveness versus its peers;

(2) Our negative outlook on TM’s credit metrics for the next 12 months on rising capex at Jaguar Land Rover Automotive PLC (JLR), TM’s 100%-

owned subsidiary, which will lead to weakening credit metrics in the near term. We note that the recent rating downgrade by Moody’s and S&P

removed headline and downside risk in the near term.

(3) Rising execution risk on the company’s investment in electric cars where more and more competitors are moving in.

Moody’s and S&P downgraded TM’s senior unsecured debt ratings by one notch from Ba1 and BB+ to Ba2 and BB on 13-July and 26-July,

respectively, on rising capex. We agree with Moody’s and S&P that rising capex will result in negative free cashflow and a rising debt-to-EBITDA

multiple. We expect TM’s debt-to-EBITDA multiple to increase to 3.5x by FY21 as the company continues to make significant investments in its

electric car business via JLR (rated Ba2/BB by Moody’s and S&P respectively).

We note that the automobile industry is evolving towards hybrid and electric cars and believe TM’s investment in this section is the right thing

to do to stay ahead of the competition in the long run and that makes TM more of a long-term investment (rather than the current TMIN complex).

However, the company’s investment in electric cars should boost the image of Jaguar and that could help with overall sales at TM.