Whats going wrong with TATA MOTORS?

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We at Shikhar Capital had booked partial profits in our Midcap and small cap holdings like … Adani enterprise, Westlife, Associated Alcohol, Rain, Escorts, Dewan and plowed all these profits into TATA MOTORS.

But, Tata motors has been a downward trend and now we are feeling bit nervous.So why this downward trend?

  1. BREXIT – This has resulted in a major blow to Pound resulting in complete wipe off of TATA motors profit for Quarter 3.  Our calculation was depreciating pound will help in boosting Jaguar sales and profits but that has not happened.
  2. Hedging policy – When you go into details of Q3 results TATA Motors management has just got wrong in their hedging policy resulting in bombed Q3 result. If you can search google how Badshah screwed the top brass of TATA Motors.
  3. Exit By RJ- RJ sold around 5 million f shares of TATA Motors hence losing the confidence of investors.
  4. BS III Inventory – TATA motors have around 25000 crores of BS III Inventory. They were not able to sell it before the deadline.
  5. Domestic Business- With some new launches TATA is trying to compete in a market which is highly competitive, and Maruti has more than 50% share. T crack that they may require a product which is far better than existing and at a far lower price point. May take a couple of years.
  6. TESLA- All investors are just betting on Eon Musk and TESLA and thus the traditional car makers are not getting any valuations. TESLA has become more valuable then FORD and now GM . This is worrying times and only time will tell.

So, has Shikhar capital changed its stand from buy to sell ??  we are really nervous as we have as of now highest portfolio allocation and all the above points are haunting us ...

so let’s have some other considerations

  1. Valuation We feel TATA Motors is highly undervalued. The M-cap of 1.5 lakh crore doesn’t match the intrinsic value as per our calculations.
  2. Domestic Business– We feel the valuation of 1.5 lakh crore is just valuing the Jaguar part and domestic business has a valuation of ZERO. The way TATA Motors is trying to launch new cars like Nexon, Tigor , they might get some ground and get some valuations for domestic business. Let’s do not forget they are the number one in Bus sales and Truck sales and the whole domestic business is valued at ZERO.
  3. Jaguar Land Rover- They have crossed their highest sales number in FY 16- 17, that is 6 lakhs. That’s a great number.With new launches and F-type just selling like insane they are going to have a good year. Also with pound depreciating these cars are going to be cheaper and that means more sales.
  4. Mr. Chandra at the top and already thinks TATA Motors is the top most priority, we are optimistic.With all cost-cutting measures and restructuring we think TATA motors could be top 3 in India .
  5. Valuations – TESLA will take at least 10 years to come in India. Till then there is plenty of room to grow. The USA has 700 vehicles per 1000 people, China has 200 vehicles per 1000 and INDIA- 30 /1000 person.   Since everyone is optimistic on Tesla valuing the company as largest manufacturer and future … all OLD biggies like GM , FORD are not valued. We believe TATA is a difereeent breed all together, just check sales number of Jaguar Landrover and Domestic business will get its MOJO Back.
  6. Cigar Butt stock– Even all this hypothesis goes for a toss and we are wrong on all fronts, we believe this has the last puff remained and as buffet says Cigar Butt stock. You may not make a fortune but the downside is limited.

So what we are trying to say?

Shikhar Capital is a startup and probability of being wrong is very very high.

Since all big investors of the world are shunning car makers, and even our local Warren Buffett ie Mr. Rakesh Jhunjhunwala has got fed u with TATA Motors, we would advise investors to be cautious . There is no bravery in going against all these learned people. But yes we believe in our analysis and at every 10% drop, we will be adding TATA motors. Maybe this will be our make or break the stock .

 

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2 comments

  1. I liked your points, and I agree with them. JLR sales vs. last quarter is about 20% higher. Pound vs. Indian Rupee is the same level as of last quarter, therefore there is not further deterioration in that front (the same 400mn pound damage this quarter as well.) Discovery sales slightly improved vs. LQ so it is not going to damage the margin more than what it did LQ. UK sales picked up as was suggested in the conference call. In the last call, management claimed that quarter was a perfect storm and it would be better sequentially. Considering that the stock price is as low as post quarter earning, market does not care about sequential q/q improvement. The 5 days price drops suggests that something is very much wrong. What can it be? can it be: 1)Sales in India dropped a lot (but stand alone is not part of valuation), 2) management issue 3) JLR sales tanked in April, …

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  2. hi ,thanks for the analysis…. only point which i will add .. everyone is valuing TESLA at premium premium premium valutions which they should because musk is doing an outstanding jobs….. all your points valid .. but i have bit difference of opinion on .. when u have money u dont buy a car which everyone has …car should have eventually a sex appeal… jaguar has that and with mr chandershekhran at top he is going to compete with tesla with I pace. The beauty of slow technology is u can copy it … forget everything the way tata motors is valued… at 1.3 lakh crore and they have around 80 thousand cash with 3 lakh of sales its ridiculous … so we believe its have limited downside and huge potential … even the upside doesn’t come … the markets are so over heated they will act as refuge ….

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