The acquisition of another company using a

significant amount of borrowed money (bonds or

loans) to meet the cost of acquisition. Often, the
assets of the company being acquired are used as
collateral for the loans in addition to the assets of
the acquiring company. The purpose of leveraged
buyouts is to allow companies to make large
acquisitions without having to commit a lot of
capital.
 COMPANY PROFILE
TATA MOTORS:- Tata Motors Limited, formerly known
as TELCO (TATA Engineering and Locomotive
Company), is a multinational corporation
headquartered in Mumbai, India. It is India's largest
passenger automobile and commercial vehicle
manufacturing company. Part of the Tata Group, and
one of the world's largest manufacturers of commercial
vehicles. Tata Motors was established in 1945, when
the company began manufacturing locomotives. The
company manufactured its first commercial vehicle in
1954 in a collaboration with Daimler-Benz AG, which
ended in 1969.
It is the 5th largest medium and heavy
commercial vehicle manufacturer in the
world. listed in BSE, NSE & NYSE.
Subsidiaries-
JAGUAR CARS
LAND ROVER
TATA DAEWOO COMMERCIAL
JAGUAR:-
A statement of ultra luxury, Holds Royal warrants,
Rarely advertised, Ford’s formula one entry since
1990s .Founded in 1922 by Sir William Lyons,
headquartered at Coventry ,ENGLAND. it became a
part of FORD MOTORS in1990 when Ford
acquired Jaguar for $2.5 billion
LAND ROVER:-
Founded in 1948 as a marque of the Rover
Company. Land Rover is an all-terrain
vehicle and Multi Purpose Vehicle(MPV)
manufacturer, based in Solihull, West
Midlands. In 1994 Rover Group is taken
over by BMW & sold to FORD MOTORS
for 2.75 bn$ in 2000. It is Known for
superior off-road performance, Used by
military for projects and expeditions,
12/06/2007- Announcement from Ford that it plans to
sell Land Rover and Jaguar.
August 2007 - Major bidders are identified
Likely buyers: Tata Motors, M&M, Ceribrus capital
Management, TPG Capital, Apollo Management
India’s Tata Motors and M&M arrive as top bidders ($
2.05b & $ 1.9b)
03/01/2008 – Ford announces 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
Reports said losses at Jaguar stood at USD 715
million in 2006. Jaguar has been a dog i.e. it
has not been able to provide any profit for ford
because of the high manufacturing costs
provided in the United Kingdom.
The strong boy Land Rover's profit, on the
other hand, was driven by the record sale of
2.26 lakh vehicles, an 18% YoY growth in
2007..
Bringing down production costs and turning
around the company successfully will be the
challenge,” analysts said. It was a test that
Ford failed.
Ford is combining both the brands since the
products and manufacturing of vehicles for
Long term strategic commitment to
automotive sector.
Opportunity to participate in two fast growing
auto segments.
Increased business diversity across markets
and products.
Land rover provides a natural fit for TML’s SUV
segment.
Jaguar offers a range of “performance/luxury”
vehicles to broaden the brand portfolio.
Benefits from component sourcing, design
services and low cost engineering
100% stake in TAMO has acquired the business & initially they will be
Jaguar & land operated independently of the partner.
Rover Business
3 Plants in UK These are well invested plants

2 advanced 4-5000 engineers engaged in testing ,prototype design &

design & powertrain
engineering Engineering , development & integration
26 National sales
center Both existing national sales companies of jaguar/land
company rover & also those that are carved out of current Ford
operation
Intellectual This covers all key technologies to be transferred to JLR &
property rights perpetual royalty free license on technologies shared with
Ford
Capital A minimum guaranteed amount of $1.1 bn which will
Allowance help managing in Tax going forward
Support from Ford Motor Credit will continue to support the sales of JLR
Ford Motor Credit for around next 12 months
Pension Ford will contribute $ 600 mn of the Pension Fund
Contributed by
 LAND ROVER JAGUAR JAGUAR+LAND
ROVER
In £ 2005 2006 2005 2006 2005 2006

Material cost /car 20,254 21,243 16,299 16,928 18,919 19,976

Employee 2,565 2,444 4,316 4,706 3,156 3,108

cost/car
£/$ 1.82 1.84 1.82 1.84 1.82 1.84

% of sales

Material cost 84.5% 85.4% 112.8% 91.7% 91.7% 90.3%

Employees 9.6% 8.9% 24.3% 13.4% 13.4% 12.4%

Investors concerns on manpower costs
misplaced
It is more important to manage the material &
sourcing costs to improve margins
Material Cost is 4-6x the wage cost for high-end
products such as Land Rover
Cost synergies – Tata Group has multiple
levers
TATA group has a rich ecosystem of JVs with
leading players in Auto ancillary space
TCS, Corus and Tata Technologies have varied
 (Nos) 2005 2006 2007
Jaguar 86,651 72,680 57,578
Western 46,789 41,367 33,024 57%
Europe
America 32,131 22,136 16,836 29%
Rest of Word 7,731 9,177 7,718 13%
Land Rover 170,156 174,940 202,609
Western 97,303 95,399 109,785 54%
Europe
America 51,634 53,638 57,092 28%
Rest of world 21,219 25,903 35,732 18%
Total 256,807 247,620 260,187
Western 144,092 136,766 142,809 55%
Europe
America 83,765 75,774 73,928 28%
Rest of word 28,950 35,080 43,450 17%
Revenue synergies limited in the
medium term (2-3 years)
In the long-run Tata Group and Tata
Motors’ footprint in South-East Asia
should help
Jaguar/Land Rover diversify their
geographic dependence from US (30%
of volumes) and
Western Europe (55% of volumes)
 Total acquisition cost at $3bn assumed to be debt-
funded on TAMO’s books
We have not considered any asset sales in our
calculations
Financial Impact: Leverage increases but coverage
ratios reasonable
Headline Debt/Equity of TAMO would increase to 2.5x
from 1x
Excluding the vehicle finance biz, leverage would go to
1.2x
EBITDA/Interest remains at 5.0
Valuation: TAMO is trading inline/modest discount
to global peers
EV/Sales (1-yr forward) of 0.5x against 0.4x for global
Financial Stability CY2007/FY08E
ratios
TAMO Consolida
($m) ted
Net Debt 2,664 ($mn)
5,664 This debt includes
$3bn raised for
Net Debt - excluding (271) 2,729 acquisition
TAMO auto biz is
vehicle currently minimally
finance biz leveraged -if we net
off the vehicle financing
receivables against its
Net Debt.
Net Debt/Equity 1.15 2.45 On a consolidated
basis, the TAMO’s
Net Debt/EBITDA 2.23 2.66 leverage looks
adverse – however
coverage ratios are
EBITDA/Interest 8.56 5.24 still reasonable
 TAMO + JLR: Leverage and Valuation ratios
Proforma
Valuations (TAMO
+JLR)
Share price 630

O/S shares 385

Mkt cap ($m) 6,070

Net Debt ($m) 5,664 This debt includes $3bn raised

for acqusisition
EV ($m) 11,735

EV ($m) 0.48 The current valuations are

inline or discount to global
EV/EBITDA (1-yr 5.5 peers
forward)
P/E (1-yr forward) 6.65
Proforma CY2008/FY09E CY2009/FY10E
P&L ($
m)
$m TA JLR S Cons TAMO JLR S Cons
MO P o P o
V V

Sales 10,2 14,2 24,4 12,001 14,2 26,21

10 14 24 14 5
Cost 71.1 We have assumed a
synergies
50bps
EBITDA 1,19 935 2,13 1,494 1,00 2,500 improvement in JLR’s
6 1 6
operating
EBITDA 11 6 8.7% 12.4% 7.1% 9.5% margins in CY2009
margin .7% .6%
Depreciatio 140 699 917 259 699 958 We have assumed the
n entire
bridge loan to be
Interest 105 42 182 149 42 191
converted to
long-term debt of $3bn
Other 105 105 113 113 as a
income stress case scenario
and taken
the appropriate
Proforma CY2008/FY09E CY2009/FY10E
P&L ($
m)
Pre Tax Profit 944 194 1,13 1,19 265 FORD has indicated that JLR
8 8 is profitable at PBT level
Interest cost 225 225 225 225 We have assumed the
of acquisition entire
bridge loan to be converted
Proforma Pre- 944 194 (225 913 1,19 265 (225 1,239
to
tax Profit ) 8 )
long-term debt of $3bn as a
stress case scenario and
Impact on -3% 3% The
takenimpact of TAMO’s
TAMO FY09E proforma PBT could
the appropriate be
interest
PB between
cost 5-10%
($ m) TAMO ($ JLR ($ conso
m) m)
Net Tangible 2,510 2,246 4,756
assets
Net Intangible 111 2,010 2,121
Assets
Vehicle Financing 2,935 2,935
receivables

Net Current (56) (107) 537 We have assumed TAMO will put
Assets $700m as operating cash
in JLR on consolidation in JLR. Hence
the NCA of TAMO &
JLR do not add up
Cash & eqv 638 638 The cash equivalents includes
shares of Tata Steel worth
Trade 233 233
$400m held at cost of $50m
Investments
Pension Assets 696 696

Other Assets 3 297 300

Total Assets 6,373 5,142 12,21

5
($ m) TAMO ($ JLR ($ conso
m) m)
Warranty 489 2,667 3,156
Liabilities & Other
provisions
Pension Liabilities 19 19

Def Tax Liability 238 238

Shareholders' 2,314 2,456 2,314 Since the acquisition cost ($2.3bn) is less
equity than Net asset
value of JLR, there is capital asset instead
Capital Asset 156
of goodwill
Minority 30 30
Interest
Debt 3,302 6,302 We have assumed $3bn acquisition debt
of which $2.3b is used for paying Ford and
Total 6,373 5,142 12,215 the balance as operating cash in JLR
Liabilities
Proforma T JLR SPV Conso
Cashflow ($ m) AMO
Cash Profit 949 893 (225) 1,617

Chg in operating 238 (256 (18) TAMO has a robust working capital
Working Capital ) management in its auto biz. Inventory
and receivable days at around 30 & 9
Cashflow from 1,18 637 (225) 1,599 respectively and creditors at around 40
operating 7 days
activities The vehicle loan receivables skew the
reported
Increase in (776) (776) working capital picture as they are
Vehicle loan shown as part of working capital under
receivables Indian GAAP
Capex (813) (635 (1,447) We estimate operating cashflow from
) auto biz largely covers TAMO’s auto
Trade (38) (38) capex . Currently it would be free
investments cashflow neutral to modest +ve.
Chg in 16 16
associates
Cashflow from (834) (635 (1,469)
Investing )
activities
 Proforma TAMO JLR SPV Conso
Cashflow ($
m)
Chg in (30) (30)
minorities

Chg in debt 949 3000 3949

Dividend (154) (154)

Cashflow from 766 3000 3766

financing
activities
Chg in cash 343 3 2,775 3,120

Operating 337 3 (225) 115 We estimate that JLR has a +ve pretax
Cashflow - cashflow
Capex
 Sale of Tata Steel Shares
TAMO holds $400m worth of Tata Steel shares (4.3% of outstanding
shares)
Tata group holds 33.7% in Tata Steel leaving room for some reduction in
group stake
Stake sale / IPO of Telcon, HV Axles, HV Transmissions
We value Telcon at around $1bn (13xFY09E EPS); TAMO holds 60% stake
in it
HV Axles and HV Transmissions are 100% owned by TAMO (est value
$200-250m)
Sale of Vehicle Finance business (Tata Motor Financial
Services Ltd)
Since 3QFY07, TAMO’s incremental vehicle finance biz is housed in this
subsidiary
We estimate total loan receivables (TMFSL + TAMO) at Rs 120bn by end-
FY08E
Any sale of vehicle finance biz will significantly de-lever TAMO’s balance