TATA MOTORS LIMITED

RESEARCH
EQUITY RESEARCH June 17, 2009

RESULTS REVIEW Tata Motors Sell

In a fix
Share Data
Market Cap Rs. 166.7 bn For FY09, the net sales of Tata Motors Limited (TML) declined 11.1% yoy to
Price Rs. 324.25 Rs. 253.4 bn, primarily due to lower volumes. EBITDA dropped 40.7% yoy
BSE Sensex 14,522.84
to Rs. 10.7 bn mainly because of higher raw material prices. This, coupled
Reuters TAMO.BO
Bloomberg TTMT IN with higher interest cost burden to finance the JLR acquisition, has been
Avg. Volume (52 Week) 0.8 mn pushing TML’s net profit margin southward. The Commercial Vehicle (CV)
52-Week High/Low Rs. 537.7 / 122
industry continued to remain under pressure; for FY09, TML’s domestic CV
Shares Outstanding 514 mn
volumes declined by 15.4% yoy to 265,012 units. Further, we believe the
Valuation Ratios (Consolidated) recent rally in the TML stock is much ahead of fundamentals and was
Year to 31 March 2010E 2011E
largely driven by the Nano-effect. However, we do not expect the Nano to
EPS (Rs.) 16.0 19.9
+/- (%) (19.6)% 24.8% significantly contribute to the Company's top-line and its bottom-line in the
PER (x) 20.3x 16.3x near term. Given these factors, we maintain our sell rating on the stock with
EV/ Sales (x) 1.1x 1.1x
a target price of Rs. 238.
EV/ EBITDA (x) 17.1x 13.7x
CV segment remains a cause for concern: Higher interest rates on
Shareholding Pattern (%) commercial vehicles resulted in a decline of demand for CVs, which
Promoter 47
continued to fall throughout the year. Demand for trucks, the largest
FIIs 6
Institutions 17 revenue generating CV segment, continued to remain weak. In FY09, the
Public & Others 29 overall demand for trucks contracted by ~33%. Given TML’s leadership

Relative Performance position in this segment, the Company had to bear the maximum damage
as its domestic volumes in heavy and medium commercial vehicles

550
declined 31.5% yoy to 113,674 units. However, the domestic LCV segment
450 has shown a marginal improvement of 2.7% yoy to 151,338 units. Further,
350
the Government of India (GoI) announced a bundle of stimulus packages
250
150 during the second-half of FY09, to improve the credit situation and liquidity.
50
However, the availability of bank credit continues to be an issue as banks
May-09
Aug-08

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Apr-09
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Jul-08

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Dec-08
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Mar-09

Jun-09

Key Figures (Standalone)

TML Rebased BSE Index Quarterly Data Q4'08 Q3'09 Q4'09 YoY% QoQ% 2008 2009 YoY%
(Figures in Rs. mn, except per share data)

Net Sales 86,731 47,136 66,827 (22.9)% 41.8% 285,305 253,541 (11.1)%
Adj. EBITDA 7,591 779 5,359 (29.4)% N.M. 28,672 17,013 (40.7)%
Adj. Net Profit 6,188 (1,210) 1,559 (74.8)% N.M. 19,023 10,657 (44.0)%

Margins(%)

EBITDA 8.7% 1.6% 7.8% 7.6% 10.6%

NPM 7.1% (2.5)% 2.3% 1.8% 5.7%

Per Share Data (Rs.)

Adj. EPS 14.9 (2.5) 3.5 (76.3)% N.M. 45.9 19.9 (56.7)%

Please see the end of the report for disclaimer and disclosures. -1-

EQUITY RESEARCH
JLR sales continued to remain
under pressure
Outstanding debt increased to
Rs 131.6 bn; interest expenses
more than doubled to Rs. 6.7 bn
Please see the end of the report for disclaimer and disclosures.
TATA MOTORS LIMITED
RESEARCH
June 17, 2009
are adopting a cautious approach towards taking risks and extending their
lending operations. Accordingly, we expect the demand for CVs to remain
weak and see revival only after the first-half of FY10. Overall, we expect the
CV volumes to register a negative ~3% growth in FY10 and ~5% in FY11.
Insufficient information disclosures about JLR: Since the acquisition of
JLR, the Company has not provided any financial information on JLR;
however, TML had been reporting the quarterly volume numbers untill
Q3’09. For Q4’09, even the quarterly volume numbers for JLR has been
withheld. The Company plans to report the JLR financials during the last
week of June 2009. For CY08, the combined retail volumes declined by
12.1% to 252,036. While the Jaguar volumes increased 8.2%, the Land
Rover volumes that went down by 17.6% brought down the overall sales.
We expect the combined volumes of JLR to continue to decline further,
~10% in FY10 as its major markets in Europe and the US are facing a
dearth of demand.
Increasing interest costs to dent profitability: For FY09, TML’s gross
interest expenses almost doubled to Rs. 10.7 bn from Rs. 5.4 bn in FY08.
Net interest expenses increased 1.4x to Rs. 6.7bn. The Company has
extended USD 1bn out of the outstanding USD 2 bn bridge loan (initial loan
amount of USD 3 bn) by another 18 months. The USD 1 bn term loan has
been refinanced by the majority of the original consortium of lenders at
LIBOR + 500bps, much higher than the earlier USD 3 bn loan, which was
availed at very attractive rates: LIBOR + 75bps for the first three months;
LIBOR + 100bps for the next three months; and at LIBOR + 125bps
thereafter.
The beginning of Nano: TML announced that the Nano will be launched in
April 2009. However, we believe that the sales from Nano will contribute
less than ~5% in FY10 to the Company's top-line, as the mother plant at
Sanand, Gujarat, is scheduled to start production only from December
2009. Till then, the Company will continue to produce the Nano from its
manufacturing facilities at Pantnagar and Pune, that have very limited
production capacity. As such, we expect the sales of the Nano to be
approximately 75,000 units in FY10. However, after the mother plant at
Sanand becomes operational, we believe that the Nano’s contiribution to
the TML’s top-line will increase significantly in the medium to long term.
-2-
 TATA MOTORS LIMITED
RESEARCH
EQUITY RESEARCH June 17, 2009

Valuation
At the current market price (CMP) the stock is trading at a P/E of 20.3x and
16.3x of FY10E and FY11E, respectively. We have valued the Company by
using sum-of-the-parts (SOTP) valuation. Our valuation suggests a target
price of Rs. 238, which translates into a potential downside of 26.5% from
the CMP. Based on the Company’s weak outlook and our valuation, we
maintain our Sell rating of the stock.

Result Highlights & Outlook

TML’s net sales for FY09 decreased 11.1% yoy to Rs. 253.5 bn mainly due
Yearly Data FY08 FY09 YoY%
to the 15.4% yoy fall in volume of the CVs. However, lower excise duty
Domestic helped the average net realisation to improve 2.8% yoy to Rs. 500,652 per
M&HCV 166,037 113,674 (31.5)%
unit. The drop in volumes was witnessed in most of the segments; however,
LCV 147,334 151,338 2.7%
Total CV 313,371 265,012 (15.4)% the volumes of mid-sized personal vehicles increased by a massive 56.6%
Small 135,641 111,664 (17.7)% yoy to 49,188 units on the back of an encouraging response to the newly
Mid-Size 31,417 49,188 56.6% introduced Indigo CS.
UV 47,700 39,295 (17.6)%
The recent initiatives of the Indian government such as reduction in excise
Fiat 3,297 7,365 123.4%
Total PV 218,055 207,512 (4.8)% duty and lowering interest rates should positively affect the CV and Utility

Total Domestic 531,426 472,524 (11.1)%

Vehicles segment. However, we continue to hold a negative outlook for the
CV segment in the near term and expect it to improve only after the first half
Exports 54,659 33,536 (38.6)%
of FY10 as the availability of bank credit is still an issue.
Total 586,085 506,060 (13.7)%
Further, we believe that the launch of the NANO should boost the volumes
in the small-size personal vehicle category, and should increase its
contribution to the Company’s top-line and bottom-line from FY10 onwards.
All in all, we expect a marginal ~3% top-line growth for FY10E and ~17%
growth in FY11E.

For FY09, EBITDA plummeted 40.7% yoy to Rs. 17 bn, while the EBITDA
margin droped by 5.2 pts to 6.6%. This decline is primarliy attributable to
higher raw material prices and an unfavourable product mix. Cost of sales
(as a % of sales) increased 2.6 pts to 73.5%. However, we believe that the
EBITDA margin will improve in FY10 as a result of the recent fall in raw
material prices.

Please see the end of the report for disclaimer and disclosures. -3-
 TATA MOTORS LIMITED
RESEARCH
EQUITY RESEARCH June 17, 2009

Adj. net profit declined by 44% yoy to Rs. 10.7 bn; the decline was primarily
driven by increased interest expenses, which more than doubled to Rs. 6.7
bn in FY09. During the year, the Company increased its borrowings to
mainly support capex, investments, and increased working capital
requirements. Further, the Company extended USD 1 bn out of its
outstanding USD 2 bn bridge loan for 18 months and at a higher interest
rate. Accordingly, we expect the interest expenses to increase further, which
is clearly going to dent the companies profitability.

The gross total debt (inc. FCCNs) was Rs 131.6 bn as on March 2009. The
Company’s net debt (net of the surplus investible funds) stood at Rs. 124 bn
while the Company’s net debt-to-equity ratio stood at 0.99x.

Key Figures (Standalone)

Year to March FY07 FY08 FY09 FY10E FY11E CAGR (%)
(Figures in Rs. mn, except per share data) (FY09-11E)

Net Sales 272,618 285,305 253,541 260,231 306,944 10.0%

Adj. EBITDA 31,621 28,672 17,013 21,206 27,831 27.9%

Adj. Net Profit 18,650 19,023 10,657 8,569 10,697 0.2%

Margins(%)

EBITDA 12.4% 11.8% 6.6% 8.1% 9.0%

NPM 6.7% 5.8% 4.2% 3.3% 3.5%

Per Share Data (Rs.)

Adj. EPS 64.6 45.9 19.9 16.0 19.9 0.2%
PER (x) 12.7x 13.2x 16.3x 20.3x 16.3x

Please see the end of the report for disclaimer and disclosures. -4-
 TATA MOTORS LIMITED
RESEARCH
EQUITY RESEARCH June 17, 2009

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