Tata Motors is an attractive stock for a growth investor

05-06-2014 • About Tata Motors ($TATAMOTORS) • By InTwits

Tata Motors is a growth stock in Commercial Vehicles industry. It showed noticeble revenue performance in the last years among with attractive profitability and financial model.

Growth story

Tata Motors showed fast growth in the last financial year. The company's revenue surged on 23.3% in FY2014. Together with revenue growth Tata Motors also managed to keep EBITDA growth. EBITDA grew 36.9% for the same period.

If we look for the longer period Tata Motors showed fast revenue growth of 23.9% from FY2011 to FY2014 annually. EBITDA surged on 25.8% from FY2011 to FY2014 annually.

Tata Motors ($TATAMOTORS) financials for the last 5 years

mln. INR	FY2010	FY2011	FY2012	FY2013	FY2014
Revenue	904,568	1,199,526	1,627,934	1,848,479	2,279,459
Revenue growth, %		32.6%	35.7%	13.5%	23.3%
SG&A, %
EBITDA	63,186	154,700	200,383	224,942	307,838
EBITDA growth, %		144.8%	29.5%	12.3%	36.9%
EBITDA margin, %	6.99%	12.9%	12.3%	12.2%	13.5%
Net Income	25,711	92,736	135,165	98,926	139,910
Net Income margin, %	2.84%	7.73%	8.30%	5.35%	6.14%

CAPEX	84,754	81,240	138,756	188,626	269,751
CAPEX/Revenue, %	9.37%	6.77%	8.52%	10.2%	11.8%
Debt	422,927	381,996	512,277	581,088	658,043
Cash	87,433	109,328	164,769	198,109	294,593
Net Debt/EBITDA	5.3x	1.8x	1.7x	1.7x	1.2x

ROIC, %	4.8%	19.3%	20.1%	16.6%	17.2%
ROE, %	36.3%	67.7%	52.1%	28.1%	27.1%

Profitability and return on investment

EBITDA growth was supported by margin expansion. The company's EBITDA margin surged on 1.30 pp from 12.2% to 13.5% in FY2014. In the last 3 years EBITDA margin increased slightly on 0.600 pp from 12.9% in FY2011 to 13.5% in FY2014.

Tata Motors shows attractive ROIC at 17.2% for the last 12 months which assumes stable development model. Three years ago it was a bit higher at 19.3%. It's average level of ROIC for the last three years was 18.0%.

Net Income margin surged on 0.700 pp from 5.40% to 6.10% in FY2014. In the last 3 years the company showed big decline in Net Income margin of 1.60 pp from 7.70% in FY2011 to 6.10% in FY2014.

Tata Motors operates at ROE of 27.1%. Average ROE for the last three years was 35.8%.

Capital expenditures (CAPEX)

To this fast growth the company had to invest in CAPEX.In FY2014 Tata Motors had CAPEX/Revenue of 11.8%. The company's CAPEX/Revenue surged on 5.06 pp from 6.77% in FY2011 to 11.8% in FY2014. It's average level of CAPEX/Revenue for the last three years was 10.2%.

Leverage (Debt)

Tata Motors has medium debt level at 1.2x Net Debt/EBITDA to maintain high growth. In the longer period leverage dropped on 0.58x from 1.76x in FY2011 to 1.18x in FY2014.

Valuation vs. comparable companies

The company trades at 1.6x EV/EBITDA which is 90% lower than 16.0x Commercial Vehicles industry avearge calculated based on 21 companies. The company trades at 0.9x P/E which is 88% lower than 7.8x Commercial Vehicles industry avearge calculated based on 2 companies.

For capital intensive compnanies it's worth taking a look at EV/(EBITDA-CAPEX) multiple. The company trades at 13.0x EV/(EBITDA-CAPEX) which is not surprisingly 179% higher than 4.6x Commercial Vehicles industry avearge calculated based on 2 companies.

Peers in Commercial Vehicles

Below you can find Tata Motors benchmarking vs. other companies in Commercial Vehicles industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %

Top
	FY2010	FY2011	FY2012	FY2013	FY2014
V.S.T.Tillers Tractors ($VSTTILLERS)		-36.0%	24.2%	-9.2%	29.6%
Trf ($TRF)		-16.6%	19.2%	-16.0%	5.4%
Beml ($BEML)		-17.6%	2.7%	3.2%	3.7%
Ashok Leyland ($ASHOKLEY)		54.3%	15.5%	-3.3%	-8.0%

Median (4 companies)		-17.1%	17.3%	-6.3%	4.5%
Tata Motors ($TATAMOTORS)		32.6%	35.7%	13.5%	23.3%

Top companies by EBITDA margin, %

Top
	FY2010	FY2011	FY2012	FY2013	FY2014
V.S.T.Tillers Tractors ($VSTTILLERS)	9.7%	17.0%	14.0%	15.1%	19.2%
Ashok Leyland ($ASHOKLEY)	10.6%	11.0%	9.7%	7.0%	4.1%
Beml ($BEML)	9.1%	4.1%	4.8%	-1.5%	4.0%
Trf ($TRF)	6.5%	2.2%	6.3%	-1.5%	1.3%

Median (4 companies)	9.4%	7.5%	8.0%	2.8%	4.1%
Tata Motors ($TATAMOTORS)	7.0%	12.9%	12.3%	12.2%	13.5%

Top companies by CAPEX/Revenue, %

Top
	FY2010	FY2011	FY2012	FY2013	FY2014
V.S.T.Tillers Tractors ($VSTTILLERS)	2.7%	1.3%	2.4%	6.7%	5.9%
Ashok Leyland ($ASHOKLEY)	9.6%	3.2%	5.4%	5.2%	3.6%
Beml ($BEML)	2.1%	6.4%	4.4%	4.8%	1.5%
Trf ($TRF)	2.0%	2.9%	1.5%	1.1%	0.4%

Median (4 companies)	2.1%	3.0%	3.4%	5.0%	2.5%
Tata Motors ($TATAMOTORS)	9.4%	6.8%	8.5%	10.2%	11.8%

Top companies by ROIC, %

Top 5
	FY2010	FY2011	FY2012	FY2013	FY2014
V.S.T.Tillers Tractors ($VSTTILLERS)	51.6%	45.9%	36.4%	29.3%	41.0%
Beml ($BEML)	8.9%	2.3%	2.6%	-2.9%	1.9%
Trf ($TRF)	22.1%	3.3%	11.4%	-4.1%	0.5%
Ashok Leyland ($ASHOKLEY)	8.4%	13.6%	12.2%	5.8%	-0.5%
Skyline Millars ($SKYLMILAR)	12.7%	10.8%	8.0%	5.8%

Median (6 companies)	12.1%	7.0%	9.7%	5.8%	1.2%
Tata Motors ($TATAMOTORS)	4.8%	19.3%	20.1%	16.6%	17.2%

Top companies by Net Debt / EBITDA

Top
	FY2010	FY2011	FY2012	FY2013	FY2014
Trf ($TRF)	2.4x	11.2x	5.2x		36.0x
Ashok Leyland ($ASHOKLEY)	3.1x	2.0x	2.5x	5.0x	17.8x
Beml ($BEML)	1.2x	6.9x	5.8x		8.0x
V.S.T.Tillers Tractors ($VSTTILLERS)	-0.1x	-0.2x	-0.1x	-0.4x	-0.2x

Median (4 companies)	1.8x	2.0x	2.5x	0.5x	12.9x
Tata Motors ($TATAMOTORS)	5.3x	1.8x	1.7x	1.7x	1.2x

Tata Motors stock price chart

Tata Motors financials

mln.	FY2010	FY2011	FY2012

Revenue	904,568	1,199,526	1,627,934
EBITDA	63,186	154,700	200,383
Net income	25,711	92,736	135,165
CAPEX	84,754	81,240	138,756
Debt	422,927	381,996	512,277
Cash	87,433	109,328	164,769

About Tata Motors

Tata Motors Limited, together with its subsidiaries, develops, designs, manufactures, assembles, and sells commercial and passenger vehicles in India. It offers micro, compact, and midsize cars and utility vehicles; light, intermediate, medium, and heavy commercial vehicles; vans, trucks, buses, and defense vehicles; and premium, luxury, and sports cars, as well as all-terrain vehicles (ATVs). The company also manufactures engines for industrial and marine applications; and aggregates, such as axles and transmissions for commercial vehicles and factory automation equipment, as well as offers information technology services. In addition, it is involved in the manufacture of automotive vehicle components, construction equipment, and high-precision tooling and plastic and electronic components for automotive and computer applications, as well as automotive retailing and service operations; and supply chain and vehicle financing activities. Further, the company provides engineering and automotive solutions, machine tools, and factory automation solutions, as well as insurance solutions in retail segment, and services to various original equipment manufacturers; and develops electric and hybrid vehicles for personal and public transportation; and develops powertrains and other technologies. It offers its products under the Nano, Indica, Indica Vista, Indigo, Indigo Manza, Sumo, Sumo Grande, Safari, Safari Storme, Aria, and Venture brand names; alternative fuel vehicles under the Nano and Indigo brands; and luxury cars and premium ATVs under the Jaguar Land Rover brand name. The company sells its products through dealership, sales, services, and spare parts network. It also exports its products to Europe, Africa, the Middle East, South East Asia, and South Asia. The company was formerly known as Tata Engineering and Locomotive Company Limited and changed its name to Tata Motors Limited in July 2003. Tata Motors Limited was founded in 1945 and is based in Mumbai, India.