Student/s Name: Ankur H Shah Batch: A Module Name: Strategic Management Marks Allocation: 25 Assignment No: MBAFM/SM/010 Assignment

Scope: Individual Assignment Description & prospect:

Roll No/s: 11010

Assignment Duration (in hrs): 8

Tata Motors Acquisition of JLR and its impact and analysis on the Share Price , Net Profit , EPS and its Brand Value
Report & Analysis:

Brief about Tata Motors

Tata Motors Limited part of Tata Group is one of the biggest car manufacturer of India is an Indian Multinational Automotive Corporation. Its the South Asias Largest Automobile Company. It is a leader in commercial vehicle segment and comes in top three in passenger vehicle segment. Worldwide its the world fourth largest truck manufacturer and second largest bus manufacturer. It started its commercial vehicle operation in 1954. 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. It started as a domestic company and as time passed it started to expand globally also, for this purpose it undertook a number of acquisitions globally. Few of these key acquisitions are as follows: In 2004 Tata Motors acquired Daewoo's truck manufacturing unit, now known as Tata Daewoo Commercial Vehicle, in South Korea. 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. In 2008, Tata Motors acquired British Jaguar Land Rover (JLR), which includes the Daimler and Lanchester brand. 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.

The Growth Story of Tata Motors.

The objective of Tata motors was to consolidate its position in the domestic market and expand its footprint internationally through improvement in current product and new product development using ---- Leveraging in house capabilities Acquisitions and Strategic collaborations to gain complementary and competitive capabilities.

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The Growth of Tata Motors: 1984: Indias 1st LCV (407 truck) 1996: Indias 1st SUV (Safari) 1998: Indias 1st Passenger Car (Indica) 2004: Acquisition of Tata Daewoo, Korea 2005: Indias first mini-truck (Ace) 2005: Acquisition of stake in Hispano, Spain 2007: Formed an industrial JV with Fiat 2007: JV in Thailand with Thonburi 2007: JV in India with Marcopolo of Brazil 2008: Peoples car Tata Nano 2008: Acquisition of Jaguar Land Rover But the acquisition of Jaguar Land Rover proved to be a turning point for the Tata Motors.

Brief About Jaguar And Land Rover

1922 - Jaguar Cars Limited, a luxury car manufacturer based in Coventry, is founded as the Swallow Sidecar Company by two motorcycle enthusiasts. 1945 - Swallow Sidecars changes its name to Jaguar, and the first Jaguars with high-performance engines are produced. 1947 - Land Rover, a British all-terrain vehicle manufacturer, rolls out its first vehicle, apparently based on an American jeep from the Second World War. The Land Rover's distinctive bodies were lightweight and rustproof, and designed to be field-serviced, giving the vehicles a reputation for longevity in tough conditions. Although Land Rover became famous for bringing 4x4 capabilities to civilian vehicles, since the company's beginning all Series and Defender models have been used in a military capacity as well. 1950s - Jaguar makes its name with a series of elegant sports cars and premium saloons, such as the XK 150. 1961 - Arguably the most famous sports car of all time, the Jaguar E-type, first hit the road. 1968 - Jaguar merges with British Motor Corporation, subsequently taken over by Leyland, which itself was later nationalised as British Leyland. 1970 - Land Rover launches the Range Rover. 1984 - Jaguar is split off from British Leyland and listed on the London Stock Exchange. 1988 - Land Rover launches the Discovery. 1989 - Jaguar is acquired by Ford. 1997 - Land Rover launches the Freelander. 1990s - Jaguar undergoes a programme of modernisation and expansion that ensured the broadest product range in the company's history. 2000 - Ford buys Land Rover. The brand then beomes closely linked with Jaguar, with some models sharing components and production facilities. 2008 - Ford sells Jaguar Land Rover to Tata Motors, India's biggest vehicle maker, for $2.3bn (1.5bn), after almost ten months of negotiations. It never made a profit from Jaguar. 2009 - As car sales tumbled around the world, Jaguar Land Rover was forced to seek state loan guarantees from then Business Secretary Lord Mandelson. It later walked away from negotiations after the Government demanded control over the company's strategy. 2010 - In the final quarter of 2010, sales of Jaguar Land Rover cars rise 11pc to 63,155, with particularly strong performances in North America, Russia, and China. Company drives towards a 1bn annual profit.
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 Acquisition of JLR
12/06/2007- Announcement from Ford that it plans to sell Land Rover and Jaguar. August 2007 - Major bidders were identified Likely buyers: Tata Motors, M&M, Ceribrus capital Management, TPG Capital, Apollo Management Indias Tata Motors and M&M arrive as top bidders ($ 2.05b & $ 1.9b) 03/01/2008 Ford announced Tatas as the preferred bidders 26/03/2008 - Ford agreed to sell their Jaguar Land Rover operations to Tata Motors. 02/06/2008 The acquisition is complete Tata Motors acquired JLR from Ford for USD $2.3billion. They agreed on the value on 27th march 2008 and completed the acquisition on 2nd June 2008. It was an all cash deal. Through acquisition of Jaguar and Land Rover they got Daimler, Lanchester and Rover Brand also. In addition to the brands, Tata Motors has also gained access to two design centres and two plants in UK. This deal was one of the largest deals ever in Indian automotive sector history. It was termed as Mega acquisition by any Indian car company.

Why did Tata Motors go for JLR?

Long term strategic commitment to automotive sector. Opportunity to participate in two fast growing auto segments (premium and small cars) and to build a comprehensive product portfolio with a global footprint immediately. Increased business diversity across markets and product segments. Unique opportunity to move into premium segment with access to world class iconic brands. Land Rover provides a natural fit above Tata motors Utility Vehicles/SUV/Crossover offerings for the 4x4premium category. Jaguar offers a range of Performance/Luxury vehicles to broaden the brand portfolio. Long-term benefits from component sourcing, low cost engineering and design services. Sharing of best practises between Jaguar, Land Rover and Tata Motors in the future. Jaguar and Land Rover have presence in 227 markets.

Concerns
At the time of acquisition United States of America was in recession and Global economy was slowing down. Jaguar sales dropped 33% in the US and Europe in the first two months of the current year. Land Rover sales fell 13% in the US and around 7.7% in Europe during the same period. Tata motors raised US $ 3billion (Rs.12000crore) for period of 15months. Tata was under crisis because of Corus deal and had done huge investment in Tata Nano project which was already surrounded with uncertainties at that time. Ford the then owner had purchased JLR for $5 billion was selling it at half price with operating it at losses from past few years. Investors found the deal to be overpriced and huge debt taken would impact the balance sheet of Tata motors. Tata Motors were faced with the problem of slowing down in Indian auto market along with slowdown in the global auto market, resulting in slowdown in sales impacting its volume, revenue and profits. It had huge debt facing the problem of rising interest rates.
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 Impact of the Tata JLR deal

Share price of Tata Motors from Jan 2006 to Jan 2012.

YEAR
2006 2007 2008 2009 2010 2011 2012

Open
121.51 168.42 138.81 31.60 158.20 264.20 182.00

High
186.38 182.23 152.55 159.96 276.28 266.86 221.45

Low
114.08 115.19 24.40 25.20 129.02 137.65 178.65

Close
168.3 138.73 31.81 158.52 261.26 178.40 218.55

Tata Motors market value plunged to Rs 6,503.2 crore, with the stock hitting rock bottom Rs. 126.45 on 20 November 2008 Soon after the acquisition in 2008, Tata Motors found itself saddled with a debt of Rs. 21,900 crore, an uncomfortable position for a company that had been virtually debt free. The Tata Motors stock dropped more than 73% to Rs 160 for the next one year after the acquisition was announced. The company also reported a loss of Rs 2,465 crore in 2008-09. However, with good moves on controlling costs and some new launches, the management was able to turn JLR around and the share price of Tata Motors rebounded. The company has been one of the best performing stocks over the past one year, gaining more than 50% during March 22, 2010 to March 21,
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2011.The initial reaction to Tata Motors' acquisition of JLR was negative, well reflected in its stock price. However, JLR alone contributed approximately Rs 7,000 crore to the operating profit of Tata Motors for the financial year ended March 2011, the same was reflected in the share price climbing up the share price to the life time high of Rs.267 in 2011. Tata motors share prices dropped in the market after acquisition of JLR because of the investor perception that it was not the right time to invest in that acquisition, when Tata had recently undergone huge capital expenditure for the Nano project, especially in singur and the results were still unrevealed, moreover the investor thought that it was the time to be conservative and stabilize reserves rather than in sourcing more debt burden. In 2011 company had announced split in the face value of share from Rs.10 to Rs.2. The Return of Tata Motors Stock v/s Sensex and Nifty.

EPS of Tata Motor Share

EPS
150 100

Rs

50 0 -50 -100 2011 2010 Year Consolidated Standalone 2009 2008

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Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Reported EPS (Rs) Standalone 28.55 39.26 19.48 52.63 49.65 Reported EPS (Rs) Consolidated 145.30
44.11 -54.80 57.97 57.21

In 2011 company had announced split in the face value of share from Rs.10 to Rs.2. EPS of the company was company was 49.65 in standalone and 57.21 in consolidated category that is before the acquisition , in the year of acquisition that was in June 2008 , but for the year ended March 08 the EPS increased just by few basis point . post the acquisition and due to the recession the EPS fell drastically to 19.48 in standalone category and in consolidated it was negative which reflected the accounts of JLR also it was -54.80. In March 2010 Tata were able to revive the company and got JLR into profit after years , it was due to their strategic management and the changes they got around into the company the EPS increased from 54.80 to 44.11 in march 10 . for the year ended March 11 the JLR was the largest contributor the revenues and profit of Tata motors around 80% alone was contributed by JLR i.e. $1.7 billion from JLR. The deal proved to be very profitable and Tata motors were able to show the world that they can be global in their expertise and can show the world that Indian car manufacturer can handle and operate a luxury brand more effectively and efficiently.

Net profit Net Profit

10,000.00 8,000.00 6,000.00 Rs in Crores 4,000.00 standalone 2,000.00 0.00 2011 -2,000.00 -4,000.00 Year 2010 2009 2008 consolidated

The graph above shows the net profit of Tata motors.

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P&L A/C Tata Motors Standalone (Rs in Crores.). Mar '11 4,705.72 384.70 1,811.82 314.93 Mar '10 4,032.83 589.46 2,240.08 259.03 Mar '09 1,723.10 12.50 1,001.26 240.64 Mar '08 3,030.52 547.55 2,028.92 202.70 Mar '07 2,586.51 660.37 1,913.46 177.59

Operating Profit Tax Reported Net Profit Book Value (Rs) Consolidated (Rs in Crores.).

Operating Profit Tax Reported Net Profit Book Value (Rs)

Mar '11 16,815.78 1,216.38 9,220.79 299.77

Mar '10 6,815.84 1,005.75 2,516.89 143.93

Mar '09 3,590.19 335.75 -2,465.00 115.45

Mar '08 4,016.74 851.54 2,234.75 224.95

Mar '07 3,818.54 883.21 2,204.79 199.69

The performance of the Jaguar Land Rover business which turned profitable for the year ended March 31, 2010 reflecting profit in the consolidated net profit column. The financial results are not comparable over the previous year where the business was under the companys ownership for the 10 month period from June 2, 2008 March 31, 2009 The good showing by Jaguar Land Rover helped Tata Motors post a four-fold jump in consolidated net profit at Rs 9,221 crore (Rs 2,517 crore) for the fiscal ended March 31, 2011. Revenue was up 33 per cent at Rs 123,133 crore (Rs 92,159 crore). The picture was not as cheerful on standalone basis with the net profit for the year down 19 per cent to Rs 1,812 crore (Rs 2,240 crore). Revenue, however, increased 35 per cent to Rs 48,040 crore (Rs 35,593 crore).

Brand Value
The M-Cap of Tata Motors at the time of acquisition was Rs.24000crore but as the deal was sealed within few months it plunged to Rs.6500crore. The reason for this was, the market didnt see much value coming from JLR as both the brands were loss making from past many years. Ratan Tata said in Aug 2008 "The two are terrific brands. There is terrific R&D behind them. It is for us to put them into products. The current M-Cap of Tata Motors is around Rs.70000 crore, more than ten fold rise in M-cap post acquisition. The Company surpassed the Reliance Industries Indias Largest Pvt sector company as Indias Most valuable brand in 2010 with a valuation of $8.45billion. According to the Most Valuable Brands report pegs, the value of the Tata Motors-JLR brand soared 172% in one year to $8.45 billion from only $3.1 billion in 2008-09. A large chunk of Tata Motors's incremental brand value of $5.35 billion has been generated because the JLR brands are now demonstrating an ability to drive cash flows, says Brand Finance. Tata brand has been ranked as the first Indian brand to be included in the Top 50Global brands as per
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the report of Brand Finance's Global 500. The group's brand value is pegged at $15.8 billion as compared to $11.21-billion in 2010. The increase in the brand value was because of Tata Motors.
Inference:

Tata Motors was a healthy profit making company present globally, but its urge to expand and enter a new luxury segment it acquired Jaguar and Land Rover Brand. JLR is the British based company , they acquired it from Ford. JLR was running in loss from past many years and had debt on its account. Tata motors decided to acquire JLR for $2.3billion all cash deal. It used all it cash reserves and remaining they borrowed for this deal. Analyst at that time gave a negative rating to the deal as JLR was operating in loses and they felt Tata paying a premium to acquire the company. In 2008 global economy was slowing down because of recession in USA. It impacted the Automotive industry impacting its sales which affected the revenue and the profit. Tata motors had huge debt which it borrowed for JLR deal. There was downturn in Indian auto market slowing down the sales impacting revenues; this resulted in loss for the Tata motors for the next year impacting the stock price. In fact, in 2009, Tata Motors suffered an annual loss of over half a Billion dollars due to slump in Land Rover & Jaguar sales It really looked like Tata Motors had put a foot wrong with JLR deal. Tata Motors announced its annual numbers and it revealed that more than 80 percent or $1.7 billion of its bumper $2.04 billion annual profits came from the JLR unit alone. When Tata Motors took over in 2007, Jaguar had annual sales figures of 15,700 cars and Land Rover had sold just fewer than 50,000 cars. In just 3 short years, Tata Motors has managed to sell a whooping 244,000 Jaguar & Land Rover cars globally. Tata Motors have managed to do this in spite most of the European countries, which are JLRs major markets, still struggling under recession. With this turnaround Tata Motors have proved that they are more adaptable to the demands of dynamic global automobile market and now stand tall amongst their global competitors!
List of Reference:

http://www.tatamotors.com/investors/pdf/2008/Jaguar-Land-Rover-Acquisition-Part-1.pdf http://www.livemint.com/2010/11/14211117/How-Tata-Motors-turned-JLR-aro.html http://m.economictimes.com/PDAET/articleshow/2902690.cms http://www.moneycontrol.com/stocks/hist_stock_result.php?sc_id=TEL http://businesstoday.intoday.in/story/mergers-and-acquisitions-throw-up-attractive-investmentoptions/1/14940.html http://www.moneycontrol.com/india/stockpricequote/autolcvshcvs/tatamotors/TM03 http://money.rediff.com/companies/tata-motors-ltd/10510008/ratio http://www.moneycontrol.com/financials/tatamotors/ratios/TM03#TM03 http://articles.economictimes.indiatimes.com/2010-10-26/news/27598497_1_tata-motors-jlr-jlr-brandsland-rover-brands http://www.moneycontrol.com/stock-charts/tatamotors/charts/TM03#TM03 http://articles.economictimes.indiatimes.com/2011-03-22/news/29174646_1_tata-brand-global-brands-8-

brand-value

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