Tata Motors – Increasing Market Share in the Indian Market

Constant focus on automation and technology makes Tata Motors the leader in India’s commercial vehicle market
World-class manufacturing and a presence across design and production to assembly
The company is expected to gain with gradual improvement in semiconductor availability, rising demand for electric cars and overall wholesale demand
Semiconductor shortage has led to a 5-month backlog in EV orders

Tata Motors (NSE:TATAMOTORS) is one of the leading automobile manufacturers in India. The company has a broad range of cars, utility vehicles, trucks, buses and defence vehicles in both commercial as well as passenger vehicle segment in India. It is one of India's largest OEMs offering an extensive range of integrated, smart and e-mobility solutions. The company belongs to one of India’s most trusted and reputed business groups and enjoys strong financial flexibility as a part of the Tata Group.

Tata Motors has a presence in over 125 countries. The company has a long history in India dating back to 1945 and has sold more than 8,30,000 units till date. It operates through 8,800 sales and service points and has manufacturing, R&D and design facilities in more than 25 sites across India, Europe, China, UK and North America. Tata Motors’ R&D Centres can carry out complex vehicle designing through 3D visualisation and the integration of intelligent electronic vehicular control systems with hybrid technologies.

Tata Motors has a very high brand recall. The company’s vehicles are trusted for their global styling, enhanced driving comfort and superior performance as well as safety and maintenance, user comfort and life cycle cost. Tata Motors had a market share of 45% in commercial vehicles segment and 13% in passenger vehicles segment in Q3. Overall share of Indian market has increased to over 12% from just 4.8% in FY20.

Tata Motors Advantages

i) First-mover advantage in the Indian Electric Vehicles Market – Tata dominates India’s electric car market accounting for 90% of India's total electric car sales. Tata is looking at increasing the production of electric cars to 80,000 units annually. The company also introduced leading-edge powertrains and electric solutions packaged for power performances and user comfort at low costs. India is witnessing an increased demand for EVs amid rising awareness, government support, improving car performance, rising ICE vehicle prices and increasing fuel cost. The government is targeting to electrify 30% of all cars sold in the country by 2030. Q3 EV sales crossed 5,500 units.

ii) Leading carmaker in India - Tata Motors became the second largest carmaker in India in Dec’21, marking the highest car sales in the calendar year since inception. Some of Tata’s recent offerings include Tigor and Nexon in the passenger segment and Ultra and Signa in the commercial segment. The company also unveiled 21 new commercial vehicles across all segments. It also launched advanced CNG technology in Tiago and Tigor. The company is well-positioned to gain from rising affluence and increasing consumerism in India.

iii) Improved Q3 Performance – Q3 performance benefited from improved trucker’s sentiment index and gradual demand recovery. Sales in Q3 increased by 19% YoY and the company gained market share across all segments. The company also witnessed increased demand for CNG-powered trucks in Q3. The company ended Q3 with a healthy order book of c.155,000 units for New Range Rover and adequate liquidity with cash equivalents of Rs. 5.8K crores. Tata Motors witnessed a sales growth of ~65% YoY to 41,587 units in April 2022.

Challenges

• Chip Shortage – Like other automobile players, Tata Motors also faced acute shortage of semiconductor chips as a result of supply chain constraints in the wake of the pandemic and then the Russia-Ukraine war. Though the demand for JLR products remained strong with record orders in the quarter, Jaguar Land Rover volumes remained constrained by semiconductor supply. However, the company is also focusing on entering into agreements with suppliers to secure long term supply.
• Commodity price pressures – Lower volumes and commodity pressures impacted Q3 EBIT. Tata Motors increased vehicle prices and continued efforts on cost reduction to reduce inflation impact.
• Vehicle Finance – Tata Motors witnessed impact of change in NPA recognition norms by the RBI on SCV funding. However, the company has drawn action plans to restore GNPA to less than 5% over the next 18 months.
• Inflation Concerns – People generally tend to curb discretionary expenses at the time of rising inflation which will be a headwind for car sales.
• Competition – India is a big market for auto sales and has many leading car companies grappling for a share of the large Indian Auto sales pie. Tata faces huge competition from the likes of Maruti, Hyundai, Kia Motors, Toyota, etc. These car brands are also looking at launching gasoline-electric hybrid cars in the near future. The three auto leaders Maruti Suzuki, Hyundai, and Tata Motors commanded ~70% share of the Indian market in April 2022.

Future Opportunities

Tata Motors’ pipeline of tech-enabled products keeps it at the forefront of the market. The company will focus on modular architecture, complexity reduction in manufacturing, connected & autonomous vehicles, clean drivelines, shared mobility, and low total cost of ownership for future growth. Tata is looking at launching 10 electric vehicles by FY26 from just two currently.

Tata Motors is also focusing on improving underlying warranty as well as enhanced roadside assistance data & social media listening to enhance customer satisfaction. It is also working on material costs and supply chain transparency to mitigate any future risks.

Valuation

The stock is currently trading at near INR 426, which is ~20% below its 52-week high price. The market capitalisation value is INR 1,41,000 Cr.

Shares gained 46% in the last year and more than 100% in three years. The company had strong liquidity position at the quarter end amounting to INR 6.4K Cr. JLR had total liquidity of £6.5 billion, including £4.5 billion of cash and a £2 billion undrawn revolving credit facility. Free cash flow (automotive) in the quarter, was positive at INR 4K Cr (as compared to positive INR 7.9K Cr in Q3 FY 21). The company also incurred Capex of Rs. 0.9 K crores in Q3 of FY22 to drive growth.

Data Source: Stocx.in

Conclusion

Tata Motors continues to grow market share across the commercial segment and restores margins as commodity inflation stabilises. It is also focusing on unlocking supply bottlenecks to step up EV sales further and continues to debottleneck JLR supply chain constraints. Tata Motors continues to witness strong demand for all its vehicles, including its flagship EV vehicle Nexon which supported market share gains in the last quarter. The company is well-positioned to gain from strong demand and product cycle tailwinds in the near term.

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