Brief Note:

Tata Motors has extensive expertise across various segments such as passenger vehicles, heavy and light commercial vehicles, and passenger carriers. They have also been actively exploring opportunities within the expanding electric vehicle (EV) segments. Identifying direct competitors for this comprehensive analysis was quite challenging due to the diversified portfolios of automobile players. For a more related analysis, I have picked to compare Tata Motors with Mahindra, Maruti Suzuki, and Eicher Motors. Unfortunately, Hyundai is not listed on the Indian stock market.

Revenue and Profitability:

Analyzing the Top line from above table, The Tata Motors have significant dominance in terms of revenue compared to its peers. The collective revenue of the three companies averages at 66.2% of Tata Motors' revenue over the period. Further, there was a overall slight decline in revenue for FY20 and FY21 attributed to the Covid-19 impact, with subsequent recovery in the following two years. Over the five-year period, Eicher has exhibited the highest growth with a Compound Annual Growth Rate (CAGR) of 9.6%, while Tata Motors shows the lowest at 3.4%.

Given the raw material-intensive nature of the automotive industry, approximately 50% of the companies' revenue is utilized for cost of raw materials. Each company's COMS averages between 46% and 58% over the period. Notably, Maruti's margin has improved to 39% over the last year, the lowest among the group, while Mahindra recorded the highest consumption at 75% for FY22 among the peers.

Analyzing the operating margins provided, that total expenses for all companies averaged around 90%. Eicher demonstrates the highest efficiency with operating profit margins at 24.4%, while Tata Motors exhibits the lowest efficiency at an average of 100.2%, which including losses incurred over three financial years within the period. Following operating margins. Eicher leads the pack in terms of efficiency with an average net income margin of 18.5%, followed by Maruti with 7%.

ROE & ROA :

The return on equity indicates the company's capacity to generate profits for its equity holders, and the return on assets reflects the company's efficiency in utilizing its long-term assets to generate net income.

The table above illustrate the ROA and ROE for the group within the defined period. Based on margin analysis, Eicher leads in both ROA (24.8%) and ROE (19.2%), followed by Maruti with 11% ROA and for ROE Mahindra with 13.3%. However, there has been a decline in efficiency for all peers throughout the period. Particularly the decrease on Eicher's ROA from 28.3% to 18.9% from FY2018 to FY2023 and ROE from 28% to 19.4%.

https://www.tmotrac.in/forum/fundamental-analysis/tata-motors-quick-peek-at-financials

Insolvency:

In the previous article on Tata Motors' financial assessment (Above link), we analyzed the company's debt problems. When examining the debt structures of peer companies, Maruti and Eicher emerged as nearly debt-free entities, facing no significant pressure from finance cost or in terms of insolvency over the period. Mahindra has increase its long-term borrowings from 33.8 to 55 thousand crores, and short-term borrowings from 11.3 to 33.7 thousand crores over the 5-year period. Additionally, the finance costs have escalated from 3987 to 5830 Crores. Interestingly, despite this increases, the cost of borrowings has decreased from 8.8% in FY18 to 6.6% in FY23. (It's important to check Mahindra’s recent financials (FY24) to ascertain whether this incorporates the impact of recent rate hikes).

Efficiency:

Within the peer group, Maruti stands out through its rapid conversion of raw materials into finished products. Using the Inventory turnover method, the company averages around a month for this process, while Tata Motors and Mahindra take 84 and 89 days, respectively. Eicher maintains an average of 53 days throughout the period.

In terms of payables payback, all companies maintain an average period of more than three months to repay suppliers. Mahindra and Tata Motors take ana average of 140-150days to repay, consistent with the favorable terms Tata Motors has with its suppliers, as noted in previous report. From this, we can infer that none of the companies in the group are facing immediate operational constraints due to supplier issues.

Regarding receivables collection, the group demonstrates high efficiency, typically converting their outstanding Sales in less than a month. Eicher and Maruti managed to collect this within 8-10 days in the last two financial years, whereas Mahindra takes 26 and 21 days for FY2022 and FY2023.

Date - 11th Apr '24; Source - Company Annual reports ;

LR