28-08-2014, 04:02 PM
Strategic Analysis of Tata Motors Seminar Report
Tata Motors.doc (Size: 1.28 MB / Downloads: 15)
INTRODUCTION
Tata Motors was established in 1945 with annual revenues in excess of USD 10 Billion, and they are known to launch the first $2000 car of the world (Tata Nano) which has been in world news very recently.
They are the first Engineering Sector Company from India to be listed on the New York Stock Exchange. They are the no. 1 vehicle manufacturers (especially cars and trucks) of India and have impressive export records as well. In terms of size, they are much smaller compared to
This dissertation is dedicated to Strategic Analysis techniques of Tata Motors.
the strategic valuations like Michael Porter’s Diamond Model, SWOT Analysis, Balanced Score Carding, etc. are of great interest to both internal and external investors.
The Tata Group was founded in 1868 when India was under British Empire. The group formed their textile business in 1874 and Steel manufacturing in 1907. In 1945, Tata Sons Limited started the automotive business with manufacturing steam locomotive boilers after purchasing the shops of East Indian Railways from Government of India, which was under the British Government in that year.
After purchasing these shops, the Tata sons decided to establish Tata Engineering and Locomotive Company Limited (TELCO Limited) and establish the primary manufacturing facility in Jamshedpur (an industrial city in Eastern India). This company was managed by J.R.D. Tata from 1945 to 1973 and by Sumand Moolgaokar from 1973 to 1988.
Sumand established the second manufacturing facility in Pune India looking into the boom in the auto market. In 1991 Ratan Tata took over the Tata Empire from his uncle and moved the Tata group out of the sectors where they were not very competitive – like Cement and Textiles. Today, Tata’s largest manufacturing businesses are Steel and Motors after the consolidation carried out by Ratan Tata. As on end of financial year 2008, the Tata Group has an annual turnover in excess of $30 Billion out of which more than $9 Billion is contributed by Tata Motors.
TELCO Limited is now widely known as Tata Motors that is among the world’s top five manufacturers of medium and heavy trucks and world’s second largest manufacturer of medium and heavy busses. Tata possess a strategic engagement with Mercedes Benz for assembling and selling Mercedes Benz commercial vehicles and passenger cars in India.
Another strategic tie up that they possess is with Cummins pertaining to their diesel
engines through Tata Holset Limited. In fact, Tata Motors contributed to the Cummins Diesel engines by adding turbo chargers on them vide their joint manufacturing operations with Tata Holset Limited.
The only partnership of Tata that didn’t go well was with Rover Group of Britain that went bankrupt in year 2005. Tata tried entering the European markets through a model named City Rover that faired poorly due to its negative publicity, higher price and poor quality compared to the competition.
Ratan Tata is now 70 years old but still presents the image of a dynamic, innovative and revolutionary entrepreneur. He is known for high aggressive moves for the benefits of Tata Motors customers. In 1997, Tata Motors launched its first indigenously developed car named Indica that currently possesses more than 15% of the car market share in India.
The other car models of Tata Motors that are popular in India and some markets of Asia are Tata Indigo, Tata Sierra, Tata Sumo and Tata Safari. In 2008, Tata achieved a global publicity due to two major activities that made headlines worldwide. In the Geneva Motor show they presented their four-seater small car named “Nano” priced about $2500 which is expected to be the cheapest car of the world.
In March 2008, Tata Motors acquired the two globally prestigious companies – Jaguar and Land Rover from Ford Motor Company. It is assessed that Tata Motors did so to achieve a new image of a global automotive company like Ford Motor Company given that their business span has largely remained indigenous within India for a long time.
Strategic Framework of Tata Motors
Tata Motors is certified as ISO 9001:2000 compliant in Quality Management System and as ISO 14001:1996 compliant in Environmental Management System. Hence, they possess global recognition in best practices that strengthens their branding at a global level (http://www.tatamotorsour_world/awards.php).
They are known to be very much customer focused and are very conscious about the fitment of their products for customer needs. They believe in continuous innovations as they keep on releasing new innovations in their existing models. Although the indigenous cars of Tata Motors do not compare with the engineering excellence of a global player like Ford Motor Company, they are well suited for Asian conditions where the comfort factor is more important than cruising at high speeds.
Reviews by Indian Motor sites reveal that the Tata Motors Indica & Indigo models possess sluggish performance of engine in terms of speed and performance but are good in terms of fuel efficiency, maintainability, internal space that are more important factors given the road and traffic conditions in India.
This reveals that Tata Motors have focused on the local conditions of the country and have designed cars that are more suitable for customer needs rather than imposing additional but useless engineering on them. Example, there is no point designing a car that can run at 100 miles per hour if the maximum speeds that can be achieved even at best roads is 70 miles an hour.
One of the major success factors of Tata Motors are their supply chain excellence. The entire world is surprised by the launch of Tata Nano that shall be priced at 1 lakh approximately. An analysis by Fogarty, Justin (2009) reveals that Tata Motors could commit this price to the industry due to their excellent backend supply chain network.
Tata Motors worked very early with their suppliers in arriving at the cost estimate of the car – to the extent that even the functional specifications of the parts were completed much before even talking about the car to the markets.
Tata Motors uses Ariba spend management solution as reported by Business Wire in
2005. Ariba is a software based platform that helps in reducing bottom line costs considerably. Tata Motors is a modest company when it comes to spending because one of their primary objectives has been achieving highest operational efficiencies at lowest costs.
COMPANY PROFILE
Tata motors one of India's largest private sector companies with a turnover of over Rs 80 billion, is the country's leading commercial vehicle manufacturer and has significant presence in the multi-utility and passenger car segments.
Tata motors were established on September 1, 1945, originally for the manufacture of Steam Locomotives at Jamshedpur. By 1954, the company had diversified into the manufacture of commercial vehicles in collaboration with Daimler Benz, Germany. By the time their collaboration ended in 1969, Tata motors had become an independent producer of Medium Commercial Vehicles with a great degree of indigenization. It had also developed the capability of designing, testing and manufacturing such vehicles.
The widely successful Tata Indica, an Euro 2 compliant vehicle, is the country’s first indigenously designed, developed and manufactured passenger car. Tata Motors followed that up with the Tata Indigo, a sedan that was launched in December 2002. The company also makes several other passengers vehicles, including the Safari, Sumo and Sierra.
The company’s products have received wide acceptance not only in India but also in the Middle East, Asia, Africa, Australia, Latin America and Europe
TELCO
Currently the largest automobile company in India, Tata Motors ranks among the top 10 commercial vehicle producers in the world.
The transition of Tata Motors from being a predominantly commercial vehicle manufacturer to a complete automobile company began in the early 1990's with the launch of the first Sports Utility vehicle from Tata- the Sierra and later the Tata Estate. The insights gained into customer needs in these markets led to the development of another world-class Sports Utility Vehicle, the Tata Safari, launched in 1998.
Soon after launching the Safari, Tata Motors made an aggressive foray into the mainline passenger car market with its small car, the Tata Indica. The Indica fulfills the Tata Group Chairman Ratan N Tata's vision of developing and manufacturing a truly Indian car that would use modern technology and contemporary styling of the small car genre. It went on to set a benchmark in terms of its value proposition in terms of best value for money in its segment and internal spaciousness
Business Sector
The Tata Group runs businesses in seven key industrial sectors, namely, Materials, Energy, Chemicals, Consumer Products, Engineering, Communications and Information Systems, and Services. TELCO is Tata’s flagship company in the Engineering sector
Rationale of the study
Company Valuation is carried out to protect the interest of the investors and also to give the big picture view to the Internal Stake Holders such that they can align their strategies towards the positive direction.
The case study of Ford Motors and Tata Motors is expected to bring to table the detailed valuation techniques and also the causes of downfall of Ford Motors and learning from the success of Tata Motors. The significance of this research is that this dissertation would be useful as a reference guide for not only carrying out analysis of the theoretical framework of company valuation but also presenting practical analytics by virtue of the case studies of Ford Motors and Tata Motors using financial statements and analytics that are published on the Internet and Databases.
This document may serve as a first hand guide for researchers to understand and appreciate company valuation techniques and also get a practical viewpoint about analytics of the published data in order to build perceptions about a public listed company.
Litrature review
Wright, Natisha and Frailing, Kyle et al. 2005
In every market of operation, they have deployed local spares stocks with the help of local service franchisees such that they can extend high quality services in lower costs. Their innovation of exchangeable parts supplied by centralized supply chain system has helped them to maintain mobile spares stock across the world
Research Methodology
Hypotheses
In the modern business world, company valuation is not only needed for mergers & acquisitions but also to present the strengths and fundamentals of the company to the stake holders and investors.
The stock markets in many companies use such valuation data to assign ratings to a company – starting from “very risky to invest” to “very safe to invest”. These analytics are published after carrying out structured mechanisms of company analysis as would be presented theoretically in the Literature Review.
These mechanisms can be demonstrated by analyzing practical scenarios which shall be carried out by presenting the case studies of Tata Motors based on the published
valuation reports of by these companies as well as multiple third parties.
The reports of the case studies shall be analyzed to present conclusions about the strengths of the company and the risk factor from the perspective of prospective investors in the stocks of the company or potential buyers of the entire company.
However the perspective shall be academic and may not be applicable for professional purposes. The outlook of the next five years for the chosen companies shall be done based on academic understanding of Strategic and Financial valuation techniques. It is assumed that all the analytics techniques shall be applicable in excel sheets and no special software tools shall be required.
Not all valuations are of interest to everyone. We assume that Internal Investors may be interested more in DuPont Analysis, Book Value, Replacement Value, Liquidation Value, Replacement Value, etc. while the External Investors may be interested more in Economic Value Addition, Weighted Average Cost of Capital, Discounted Cash Flow, Market Multiplications, etc. Also, Balanced Score Carding and Michael Porter’s Diamond Modeling may be of interest of Internal Investors while external investors are interested in SWOT analysis.
Research Design
The proposed Research shall have the following design elements:
Theory Construction: It is recommended the theory of Company Valuation techniques is built with the help of high quality literature available in databases (like Proquest, All Business, etc.) and the Internet.
We will present the world class models on Strategic Company Valuation – like Balanced Score carding, Michael Porter’s Diamond Modeling, SWOT Analysis, etc. and Financial Valuation – based on the four categories of valuation methods, viz., Financial Ratios based, Metrics based, Cash Flow based and Markets based. All these models shall be presented with the help of literature review such that the relevant theories can be constructed.
Case Study: As mentioned, the theories shall be applied on Tata Motors based on their published financial statements of 2004, 2005, 2006, 2007 & 2008 and the various published analytics available in databases and the Internet. Various critical thinking and discussion points shall be evolved in the case study from the students’ perspective in addition to application of theory.
Comparisons: The outcome of application of theories on Tata Motors shall be used to carry out detailed comparison between the performance and future outlook of these companies such that critical discussion points can be addressed and gateways for future research can be opened.
Evaluation: It shall be evaluated whether the answers to the proposed Research Questions have been addressed or not. This evaluation shall be carried out qualitatively as well as quantitatively.
Trend Analysis: It is proposed that the future predictions about the performance of Tata Motors based on past trend is analyzed at the end of research.
Conclusions and Generalizations: The conclusions shall be drawn pertaining to Tata Motors whereas the generalizations shall be presented in such a way that they may qualify as empirical.
Recommendations for Future Research: Finally, it is proposed that a broad framework of future research and study is proposed at the end of the dissertation.
INTERNAL ANALYSIS
The basic premise is the Customer. So whenever a new product development plan comes into picture, the idea is to look for ways to offer the customer the best value for his money. And the way we define value, the word covers all the possible and not so possible ways to customer satisfaction
Results
Tata Motors is relatively new to vehicle manufacturing business and also has been recently listed on NYSE. They are not yet known for global innovations but possess a strong indigenous market in India that they are trying to use as a foundation to establish themselves into the global markets.
They possess a strong, efficient & low cost supply chain network localized in India but practically no supply chain at global levels. Just like For Motor Company, Tata Motors also possess brand heritage in the form of Tata Group which is one of the oldest & most successful industrial house in India. Very recently, Tata Motors made headlines by acquiring Jaguar and Land Rover from Ford Motor Company and launching the world’s cheapest car called Tata Nano.
However, in their local Indian market they faced a major setback due to political disturbances when their Tata Nano manufacturing plant at Singur (a place in West Bengal which is an eastern state of India) was shut down. This setback has raised questions on the delivery Commitments of Tata Motors against the orders that they have booked indigenously and globally.
Currently they are at least one year late in meeting commitment of delivery of Tata Nano and hence have already opened room for new entrants in this business which may prove to be disastrous for them. Their financial outlook is appearing to be strong with profits made every year and dividend payments made regularly.
However, their cash flow forecast places them at slightly riskier position even at nominal discount rates although they are bound to be discounted at higher rates for time being due to lesser information available on their market beta analysis. Overall, they are largely equity financed but 2009 needs to be watched closely to analyze changes in their Capital Structure.
One of their major challenges is to meet European safety & emission standards on Tata Nano because they have already failed once in the European market and are not yet known for developing global cars and hence have not yet built a sound global brand equity. Hence, currently they appear to be an overambitious company whereby an effective market campaigning of Tata Nano has brought them at a global platter but it appears that end of the day they may just end up capturing their local Indian market.
Conclusions
After a long spell of analysis, it is now time to conclude the dissertation. As indicated in the beginning, the objective of this dissertation was to evaluate various strategic analysis techniques and company valuation techniques and then apply them on the case studies of Ford Motor Company and Tata Motors.
The analysis started with history of the company and thereafter the strategic analytics based on SWOT analysis, Ansoff matrix, Michael Porter’s Five Forces Model, Michael Porter’s Diamond Model, and Balanced Scorecard Strategic framework have been carried out. The strategic framework helped in viewing in-depth strategic & management framework of the company. This analysis helped in arriving at an analytics that presented the broad perspective of their internal and external factors in the company.
Thereafter, the various valuation techniques have been presented in this dissertation. First the valuation metrics have been presented without going in depth into the valuation techniques and then an analysis of various theoretical analysis based on empirical generalizations have been carried out.
The theoretical analytics have been carried out to arrive at arguments on the capital structure of both the companies, their financial ratio valuations, their net present value analytics and some conclusions on the cash related challenges of both the companies in the next few years.
After these analytics, the various valuation techniques have been introduced and a general argument presented on which technique is suitable for both the companies given their current scenarios, their standing in the market and the market dynamics.
The theoretical literature help substantially in establishing a sound theoretical foundation of a dissertation which can be later used to fine tune the though process in the data collection, analysis of case studies, presentation of results, critical discussions and conclusions. Moreover, the empirical generalizations apply very well in theoretical foundation of the entire analysis.
They have been elementary in reaching logical conclusions against the strategic analysis as well as valuations. In this research, the selection of the two companies was done based on some headlines that had rocked the UK and the entire world largely – the sale of Jaguar & Land Rover by Ford Motor Company to Tata Motors. This news actually gave us a clue that there shall be multiple links between these two organizations which shall be evident once the strategic analytics are carried out effectively.
Strategic Analysis and Company Valuation are not easy tasks for a student given that they are very complex even for seasoned practitioners. The task became even more complex as the two companies chosen are altogether from different geographies with completely different business models and target markets.
Tata Motors have largely developed products as per Indian conditions and have not done very well in their attempt to enter European markets although they have been doing well in small sized trucks (Tata Sierra) in the UK markets.
Comparisons of strategic analysis and valuations of these two companies faired to be very difficult given that multiple data sources needed to be consolidated to reach standardized information framework. It finally has been successful only because of support from databases, money sites, third party independent analytics and past scholarly articles, researches & dissertations from the university library