Automobile industry in India

The automobile industry in India is one of the largest in the world and one of the fastest growing globally India manufactures over 11 million vehicles(including 2 wheeled and 4 wheeled ) and exports about 1.5 million every year . it is the world second largest manufacturer of motorcycles with annual sales exceeding 8.5 million in 2010 India passengers car and commercial vehicle manufacturing industry is the seventh largest in the world with an annual production of more than 2.6 million units in 2009 .in 2010 India emerged as Asias fourth largest exporter of passenger car. Behind japan south Korea and Thailand As of 2010 India is home to 40 million passengers vehicles and more than 2.6 million cars were sold in India in 2010 (an increase of 26%), making the country the second fastest growing automobile market in the world .according to the society of Indian automobile manufacturers, annual car sales are projected to increases up to 5 million vehicles by 2015 and more than 9 million vehicles on the nation roads

Background of Tata motors

Tata Motors Limited (NSE: TATAMOTORS, BSE: 500570, NYSE: TTM) is an Indian multinational automotive corporation headquartered in Mumbai, India. It is the eighteenth largest motor vehicle manufacturing company in the world by volume. Part of the Tata Group, it was formerly known as TELCO (TATA Engineering and Locomotive Company). Its products include passenger cars, trucks, vans and coaches. Tata Motors is South Asias largest automobile company; it is the leader in commercial vehicles and among the top three in passenger vehicles. Worldwide it is the world's fourthlargest truck manufacturer and second-largest bus manufacturer.[2] It has auto manufacturing and assembly plants in Jamshedpur, Pantnagar , Lucknow, Sanand, Dharwad and Pune, India, as well as in Argentina, South Africa, Thailand and the United Kingdom. Tata Motors has produced and sold over 6.5 million vehicles in India since 1954.

Originally a manufacturer of locomotives, the company manufactured its first commercial vehicle in 1954 in a collaboration with Daimler-BenzAG, which ended in 1969. In 2010, Tata Motors surpassed Reliance to win the coveted title of 'India's most valuable brand' in an annual survey conducted by Brand Finance and The Economic Times.[5] Tata Motors is a cross-listed company; its stock trades on the Bombay Stock Exchange and the New York Stock Exchange.

Acquisitions

In 2004 Tata Motors acquired Daewoo's truck manufacturing unit, now known as Tata Daewoo Commercial Vehicle, in South Korea.[7]

In 2005, Tata Motors acquired 21% of Aragonese Hispano Carrocera giving it controlling rights of the company.

In 2007, Formed a joint venture with Marcopolo of Brazil and introduced low-floor buses in the Indian Market.[8]

In 2008, Tata Motors acquired British Jaguar Land Rover (JLR), which includes the Daimler and Lanchester brand names.[9][10][11][12]

In 2010, Tata Motors acquired 80% stake in Italy-based design and engineering company Trilix for a consideration of 1.85 million. The acquisition is in line with the companys objective to enhance its styling/design capabilities to global standards.[13]

Expansion

After years of dominating the commercial vehicle market in India, Tata Motors entered the passenger vehicle market in 1991 by launching theTata Sierra, a multi utility vehicle. After the launch of three more vehicles, Tata Estate (1992, a stationwagon design based on the earlier 'TataMobile' (1989), a light commercial vehicle), Tata Sumo (LCV, 1994) and Tata Safari (1998, India's first sports utility vehicle). Tata launched the Indica in 1998, the first fully indigenous passenger car of India. Though the car was initially panned by auto-analysts, the car's excellent fuel economy, powerful engine and aggressive marketing strategy made it one of the best selling cars in the history of the Indian automobile industry. A newer version of the car, named Indica V2, was a major improvement over the previous version and quickly became a mass-favorite. Tata Motors also successfully exported large quantities of the car to South Africa. The success of Indica in many ways marked the rise of Tata Motors.[14]

Tata Motors - 2010 Market Performance

The FY 2009-10 witnessed the highest sale of Tata Motors vehicles registering at 642,686 units. In March 2010, Tata Motors' total sales were recorded at 75,151 against 54,452 units vended in March 2009. Collective sales of Tata Motors commercial vehicles in the Indian market for 2010 are 373,615 units. The company registered a growth of 41% considering its previous year's sales while the collective sales of Tata Motors passenger vehicles for 2010 are 234,930 units and are estimated the highest ever for the firm. The firm's trade from exports for March 2010 was at 4,105 units against 1,799 units in the previous fiscal.

TATA MOTORS DIVIDEND POLICY

TATA motors has a very balanced dividend policy since 1955. In all, but two years the company has paid a healthy dividend. Dividend smoothing has enabled the company so pay dividend even at the cost of negative retained earnings. Despite being a growth company expanding in new sectors the company has continued to strike a balance between retained earnings and dividend pay-outs. In times when the company has been in crisis they have looked at others measures of satisfying the needs for liquidity for shareholders like issue of Bonus shares. Automobile market is cyclic and the effect can be seen in the earnings of TML as well. Whenever the profits of the company have exceeded expectations, the company has declared an interim dividend while continuing with the existing pay-out ratio for regular dividends. Outside India the company is also listed on the NYSE. The dividend policy of TML has helped build a special relationship with retail customers who comprise more than 7 per cent of the shareholders.

2008 - 2009 Crisis

TMs original core business in the passenger car division (small cars in India) was mildly influenced by the crisis as TMs passenger car sales decreased by only 5%. The company was much more negatively affected by the decline in sales of its commercial vehicle division which represented not yet taking into account the JLR acquisition some 2/3 of its turnover. However, the financial crisis had a much more serious impact [in the last quarter of 2008 and the first quarters of 2009] because of the burden of two major strategic initiatives. The shift of the production site and postponement of the full Nano launch which was originally scheduled for launch in March 2008 by two years led to unexpected resource needs (new manufacturing site) and a shortfall of otherwise expected 2008-09 revenues. While this burden was not caused or much exacerbated by the crisis in the global car industry, the acquisition of JLR only few months before the onset of the crisis actually affected TM much more: the dramatic decrease in JLRs sales (JLR being fully exposed to European and US markets) significantly increased the heavy losses of the new combined company in FY 2008/09; even more importantly, the refinancing of the short term bridging loan of $ 3 billion for the acquisition became much more complicated and costly in a situation of dried up capital markets. The refinancing

difficulties and increasing financing cost contributed to a serious debt overload of TM which might have led to bankruptcy (and a take-over) if the TM would have been a stand-alone company and would not have been protected and supported by its affiliation to the Tata group and its well-connected chairman. While it is no surprise that the crisis caused (temporary) problems and challenges for TMs business it seems much more remarkable how little effect it had on the companys strategy. TM steered through the crisis without much change in its path-changing (Nano) as well as its path-breaking (JLR) strategy initiatives. The constancy of purpose as well as a continuous and consistent execution of strategic plans was maintained despite highly sceptical capital market markets which had temporarily withdrawn support from TM. The unwavering pursuit of a transformational strategy of TM in the face of the financial crisis can be ultimately explained only by the affiliation of the company to a very strong and supportive conglomerate with a particular mode of operation: TM is one of the few strategic companies of the Tata group; it is guided personally by the Chairman of the Tata Group who has committed the group to a course of globalization and innovation while relying on Indias comparative location advantages; it allows the company to sustain long periods of low profitability and significant investments in resource and capability accumulation; TM profits from the value and attraction of the TATA brand in its dealings with suppliers, customers and the Government, as well as in attracting talented staff; it also profits from various group support services like the groups excellence model, its acquisition and finance expertise and its training efforts. This inherent affiliation strength enabled TM to even use the crisis as an accelerator for the implementation of its strategies by legitimizing a more swift course towards cost cutting in the JLR operations (announced closure of one plant and shift of significant supply sources to India). It may also have facilitated the far-reaching changes in TMs top management as experienced top managers were available due to the crisis and a change of top management seemed to be justified in view of TMs difficulties and temporary low performance. It can therefore be concluded that the financial crisis has not much affected TMs transformational change or even reinforced and accelerated it.

Dividend and stock price snapshot of tata motors of last 10 years

PAT ,retained earnings and equity dividend snapshot of tat motors of last 10 years

Analysis
2011 DPS EPS 20
28.55

2010 15
39.26

2009 6
19.48

2008 15
52.63

2007 15
49.65

Current ratio
The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. Companies that have trouble getting paid on their receivables or have long inventory turnover can run into liquidity problems because they are unable to alleviate their obligations. Because business operations differ in each industry, it is always more useful to compare companies within the same industry. 2011 Current ratio 0.53 2010 0.44 2009 0.44 2008 0.64 2007 0.83

Quick ratio
A measure of a companys liquidity and ability to meet its obligations. Quick ratio ,often referred to as acid test ratio is obtained by subteracting inventories from current asset and then dividing by current liability. Quick ratio is viewed as sign of companys financial strength or weakness.

Quick ratio

2011 0.54

2010 0.44

2009 0.58

2008 0.66

2007 0.92

Cash flow indicator ratio

Dividend payout ratio: The dividend payout ratio is the percentage of a company's annual earnings paid out as cash dividends. Dividend payout ratios vary by industry and are affected by market conditions and tax law. Moreover, both a low dividend payout ratio and a high dividend payout ratio can have good or bad implications. A low dividend payout ratio can indicate a fast-growing company whose shareholders willingly forego cash dividends, because the company uses the extra money to generate higher returns and, in turn, a high stock price. But a low dividend payout ratio can also point to a company that simply can't afford to pay dividends. Similarly, a high dividend payout ratio can indicate a blue-chip that pays high dividends and whose stock price is temporarily depressed. But a high dividend payout ratio can also point to a mature company with few growth opportunities. Certainly other conclusions can be drawn from both a low dividend payout ratio and a high dividend payout ratio, and the dividend payout ratio should thus be considered with other financial indicators when picking stocks. Earning retention ratio : he percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt

Dividend Payout Ratio Net Profit Earning Retention Ratio

2011 80.96 22.42

2010 44.28 30.22

2009 34.52 62.49

2008 32.51 60.13

2007 35.34 59.9

Payout ratio
The amount of earnings paid out in dividends to shareholders. Investors can use the payout ratio to determine what companies are doing with their earnings. Payout ratio =dividend per share / earning per shares A very low payout ratio indicates that a company is primarily focused on retaining its earnings rather than paying out dividends. The payout ratio also indicates how well earnings support the dividend payments: the lower the ratio, the more secure the dividend because smaller dividends are easier to pay out than larger dividends

2011 payout ratio

2010

2009

2008

2007

0.700525394 0.382068 0.308008 0.285009 0.302115

Return on equity
The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. ROE is expressed as a percentage and calculated as: Return on Equity = Net Income/Shareholder's Equity 2011 9.06 2010 15.15 2009 8.09 2008 25.98 2007 28

ROE

Return on assests
An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. The ROA figure gives investors an idea of how effectively the company is converting the money it has to invest into net income. The higher the ROA number, the better, because the company is earning more money on less investment 2011 314.93 2010 259.03 2009 240.6 2008 202.54 2007 177.33

ROA