EUR 850.00 For Business Accounts Only

Morningstar | New Morningstar Analyst Report for Tata Motors Ltd

Tata Motors benefits from substantial profitability and returns generated by its premium Jaguar and Land Rover brands. Since fiscal 2009, when Tata acquired the luxury automaker, JLR’s revenue has risen at a compound annual growth rate of 17%, with global volume growing 8%. Over the same period, JLR's EBITDA margin has averaged 12.3% but was 11.8% for fiscal 2018, owing to cyclical trough demand in Indian commercial vehicles as well as increased JLR spending on capacity expansion. This drove a respectable 13.3% return on invested capital in fiscal 2014, meaningfully surpassing our 8.9% cost of capital estimate.Over the past 10 years, competitors have entered the Indian commerical vehicle market and Tata's share has retreated to 45% from a peak of 64% in 2010. This was driven by Tata taking longer to introduce new models versus its peers, deregulation of diesel prices compromising its diesel range, new competitors entering a rapidly growing market (6% CAGR since 2008).In our view, Tata is positioned to gain from the continued growth in Indian automotive sales and the expansion of luxury markets in emerging economies, especially China. Still, the imperative remains for Tata to keep investing in new models across brands and vehicle platforms. The company also needs to improve on its ability to execute vehicles at world-class quality levels. Quality issues plagued the Nano model and sales disappointed, leading to the model's demise. While improving, some JLR products still suffer from perceived poor quality. Growing industry overcapacity and domestic competition, along with capital-intensive operations and the industry's cyclicality, pose serious challenges to Tata's ability to consistently earn returns above its cost of capital.