Agenda

Case Overview Key Issues as per the case Tata Groups performance today w.r.t the above issues Analysis of M&A performance of Tata Motors

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Assumptions
Data Sources Annual Reports of Tata Group companies up to FY11 Reports by Dion Global Solutions Limited, Moneycontrol.com Financial Data up to FY11 of each of the group company has been used for analysis Assumed 1 GBP = Rs. 85 for currency conversion

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In 1990s, economic and Global changes exposed the previously, protected Indian industry to international competition. However also provided an opportunity to leverage its strengths globally. Changes in laws and regulations regarding investments in other countries Environment conducive for outbound M&A by Indian companies. Tata group companies started using M&A quite aggressively to acquire a

GLOBAL FOOTPRINT

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Major M&A undertaken by group companies (2000 2007) Tata Steel

M&A Companies NatSteel Asia(Spore) Millennium Steel(Thailan d) Rawmet Industries(In dia) Corus(UK)

Tata Motors
Daewoo CV Comp(Kore a) Hispano(Sp ain) Tata Finance(Ind ia) JLR(under consideratio n)

Tata Tea
Tetley Group(UK) Good Earth Corp.(US) JEMCA(Cz ech Rep) Eight O Clock Coffee Energy Brands(US )

Indian Hotels
Regent Hotel(Indi a) The Pierre(US) W Hotel(Syd ney) RitzCarltonBoston(US) Hotel Campton Place(US)

TCS
CMC(India) AFSS(India) ASDC(India) Phoenix Global Solutions Financial Network Services(Austr alia) Pearl Group(UK) Comicrom(Chi le) Tata Infotech(India) TKS Teknosoft(Swit zerland) Total Comm Solutions
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Tata Steel Tata Motors M&A Indian Changes in portfolio andTata Tea objectives TCS

Hotels

Product Portfolio

Access to diversified products

Diversificatio n of product portfolio cars(low to premium), trucks(light, medium, heavy), buses Enter new market and geographies

Branded tea, Other non alcoholic beverages

Premium properties in premium cities

Add muscle to companies capabilities for banking, domestic projects etc

Strategic Goals

Increase capacity De integrated Strategy

Build a nonalcoholic beverage global brand

Build a hotel chain incrementally

Make targeted additions to its technological capabilities Accelerate presence in new markets

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Tata Group is contemplating yet another M&A Jaguar and Land rover from Ford. The issues facing the group are Issue 1 Realize anticipated synergies How to fully realize the synergies of the acquisitions? Issue 2 Is the M&A the Best Route? Is M&A the best route for group companies to build global businesses? Should all of groups 96 companies seek global footprints? Issue 3 JLR acquisition Though the JLR acquisition would give Tata Motors access to new technology and markets, but would taking over two western luxury brands be a stretch for a company traditionally focused on commercial trucks and passenger cars primarily catering to middle class consumers in India?
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Tata Steel

One of the global players in the steel industry today

Net turnover(sales) increased almost 7 times over a period of 4 years(2007-11). Weathered the global meltdown of 2008-09 better than many of its competitors

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 Continues to be one of the most cost efficient companies in the world EPS post merger has continued to stay stable, has even shot up

Tata Steel Some competitors growing faster As a result, world ranking in terms crude steel output of has constantly gone down after acquisition
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Tata Tea

Truly global company, found newer markets and products as Indian market stagnated CAGR(Sales Turnover) of 16.4% over the last 12 years

However rising commodity prices lead to declining bottom lines.

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Tata Groups performance w.r.t key issues

Tata Tea

Almost 70% of the revenue is generated from outside India Tetley makes up for 40% of sales, brand wise

Signed JV agreements with Pepsico, Starbucks etc. Hopes to reap benefits in a few years

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Tata Groups performance w.r.t key issues

Indian Hotels Entered new markets Turnover has almost tripled over a period of 7 years(2004-2011)

Indian Hotels US hotels still bleeding, economy recovery slower than expected Standalone group is profitable, consolidated running into losses

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Tata Consultancy Services

Strategic Shopping

The M&As though an integral part of the companys strategy, have not been critical to its growth.
The M&As have added muscle to its capabilities CMC provided an edge in domestic market FNS provided a banking product(leveraged to enter new markets like China and Latin America) Comicrom helped enlarge footprint in Latin America
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Tata Motors to be discussed in later sections

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Tata Steel
Attainment of strategic goals Yes, Increased tonnage, global player

Tata Tea
Yes, Global beverages company today, deriving almost 70% revenue from outside India Access to Global markets

Indian Hotels
Yes, Chain of hotels

TCS
Yes, Consolidated its position. Deeper penetration into newer markets Mature and emerging markets Complimenting existing product portfolio

Market Reach Technology

Access to new markets Access to niche, advanced technology Financials hit as a result of the 2009 meltdown. On their way to recovery

Access to US and other international markets

Financials

Since past 3 years, bottom lines are decreasing, even though revenue has increased

For Standalone, the financials are positive. Some pockets are worrisome

M&A s did not influence financials as much as it did for other group companies

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Tata Groups performance has been better than what comes across in the financials of some of the group companies!! A challenge must be kept in mind while judging the groups performance economic meltdown of 2008-09. The M&As had closely linked the Tata Group to the western economies. However most of the group companies are on the recovery path Based on the analysis and above assumption, my ratings are

Tata Steel TCS Indian Hotels Tata Tea

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One shoe size does not fit all!! M&A can be not only a fast growth measure but also a fast disruptive measure!! M&A can be the preferable route in the following scenarios

When speed of entry is important for the business success When barriers to entry can be overcome by the acquisition of a firm in the industry targeted. When the entering firm lacks competencies important in the new business area

The following can also be used to acquire a global footprint Joint Ventures Contract Manufacturing Licensing Franchising Exporting
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SWOT Analysis
Strengths Break even point for capacity utilization is one of the best in the industry worldwide R&D Activities Low cost engineering Strong financial base to invest Experience in global acquisitions Weaknesses Jaguars declining sales record No previous experience in the segment Geographical Concentration

Tata Motors
Opportunities Participate in a fast growing segments luxury/all terrain vehicles Increased business diversity across markets and products A range of performance/luxury vehicles to broaden the brand portfolio Acquire a known and respected European automotive brand Access to large distribution network Sharing of best practices in manufacturing and quality assurance systems and processes Threats

Competition from Global Players like Mercedes, Porsche, Lexus & BMW
Global Economic Factors Environmental Regulations for the low cost car maker Rising prices in the global economy Market is driven by new products Huge Debt Burden

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Tata Motors acquired JLR in 2008 Made the company a premium segment player Losses turned around in 2 years

Better than anticipated GDP in mature economies Favorable exchange rates Cost Reduction and Efficiency improvement initiatives Rapid Growth in economies like China and Russia

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Tata Motors - JLR acquisition

Market Share in the US premium segment market has not increased as expected However, at present, JLR M&A seems to be a good decision

Between 2004 and 2010, JLR sold 39,000 cars in China, last year it sold 42,000!!
Bob Grace, president of JLR China, says It won't be long before China, currently the company's third largest market, overtakes the UK and the USA.

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Major Challenges faced by the company Commercial Vehicle segment slowed Declining margins in the passenger segment Strategic M&A Goals for the company To raise the level of product development. Cut time to produce higher level products Entry into newer markets De risk the cyclical revenue stream of vehicle business Achieve the global bench mark to finance 35-40 percent of the parent companys vehicle sales

Performance Parameters for analysis

Financial Performance Overall Performance achievement of strategic goals

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Financial Performance

Steep rise due to a strong first half!

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Financial Performance Total sales has increased for both CV and PV in the domestic segment Debt to Equity reduced by borrowings at lower rates, substituting a part by issue of equity
Debt to Equity
8

7
6 5 4

6.73

3
2 1 0 0.47 2004

Rapid Decline!
0.95
2007 Year 1.34 2008 2009

4.29

1.72

0.62
2005

0.55 2006

2010

2011

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Overall Performance
Tata Motors today manufactures cars from Nano to Jaguar!! Continues to dominate the Commercial Vehicles segment Significant increase in the % of domestic sales financed by TMF(Tata Motors Finance) Entry into newer markets and geographies After TML acquired JLR, business challenges were mostly due to adverse business conditions Hence the performance can be termed as Satisfactory or in Green.

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