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Annual report analysis
Key takeaways from Tata Motors’ FY11 annual report – 1) Sharp increase in
working capital in India has resulted in lower OCF and negative FCF despite
higher profits; 2) Consol net debt has dropped 18% to US$4.7bn while consol
net D/E is now down to 1.1x; 3) Performance of some of the non-JLR
subsidiaries (Tata Daewoo CV, Tata Hispano, Tata Thailand, Fiat) has
deteriorated in FY11 and Tata Motors has had to provide them with
equity/debt support; 4) JLR’s CWIP is up sharply due to product development
costs pointing towards much higher amortization charges ahead; and 5) Tata
is examining a joint engine development program with JLR.
Sharp rise in working capital in India business
In FY11, Tata Motors’ India working capital increased by US$0.7bn due to fall in
creditor days. As a result, FY11 OCF was negative despite higher profits and FCF
was negative due to continued high capex. Management says that they partly
replaced bill discounting facility with short term debt to avail of better interest
rates due to which acceptances came down in current liabilities.
Remarkable de-leveraging of balance sheet in two years
Tata Motors’ consol net debt has now declined to US$4.7bn from US$6.9bn in
FY09. Consol net D/E (incl Tata Motors Finance – TMFL - debt) has dropped even
further to 1.1x in FY11 from 5.2x in FY09 thanks to higher profits and the equity
issuance during FY11. Book value has risen 119% to Rs288 while tangible book
value (book value excluding intangible assets) has turned positive once again.
Consol ROEs are robust at 67% though stand-alone ROEs slipped a bit to 9.5%.
Performance of some non-JLR subsidiaries has weakened
In FY11, Fiat India Automobiles, Tata Hispano and Tata Motors (Thailand) were
loss-making. Performance of Tata Daewoo CV Company also weakened but that of
TMFL improved. Tata Motors infused Rs6bn equity into Fiat India and TMFL in FY11
and gave support via loans to Tata Motors (Thailand) and Tata Hispano.
Some plans being formulated to derive synergies from JLR for India
Tata Motors is making plans for a joint engine development program with JLR with
facilities in both UK and India. Despite the diverse markets that both entities
serve, we believe that such cooperation should eventually improve Tata’s product
offerings in India, which is crucial given Tata’s fast weakening franchise in India’s
car market. In JLR, CWIP has risen sharply primarily due to product development
spend, which points to a sharp increase in amortization charges in coming years
as the product development cost moves from CWIP to Gross Block. The lack of
mention of strategies to arrest falling car market share in India came as a
surprise. Commentary on global auto demand is cautious.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Annual report analysis
Key takeaways from Tata Motors’ FY11 annual report – 1) Sharp increase in
working capital in India has resulted in lower OCF and negative FCF despite
higher profits; 2) Consol net debt has dropped 18% to US$4.7bn while consol
net D/E is now down to 1.1x; 3) Performance of some of the non-JLR
subsidiaries (Tata Daewoo CV, Tata Hispano, Tata Thailand, Fiat) has
deteriorated in FY11 and Tata Motors has had to provide them with
equity/debt support; 4) JLR’s CWIP is up sharply due to product development
costs pointing towards much higher amortization charges ahead; and 5) Tata
is examining a joint engine development program with JLR.
Sharp rise in working capital in India business
In FY11, Tata Motors’ India working capital increased by US$0.7bn due to fall in
creditor days. As a result, FY11 OCF was negative despite higher profits and FCF
was negative due to continued high capex. Management says that they partly
replaced bill discounting facility with short term debt to avail of better interest
rates due to which acceptances came down in current liabilities.
Remarkable de-leveraging of balance sheet in two years
Tata Motors’ consol net debt has now declined to US$4.7bn from US$6.9bn in
FY09. Consol net D/E (incl Tata Motors Finance – TMFL - debt) has dropped even
further to 1.1x in FY11 from 5.2x in FY09 thanks to higher profits and the equity
issuance during FY11. Book value has risen 119% to Rs288 while tangible book
value (book value excluding intangible assets) has turned positive once again.
Consol ROEs are robust at 67% though stand-alone ROEs slipped a bit to 9.5%.
Performance of some non-JLR subsidiaries has weakened
In FY11, Fiat India Automobiles, Tata Hispano and Tata Motors (Thailand) were
loss-making. Performance of Tata Daewoo CV Company also weakened but that of
TMFL improved. Tata Motors infused Rs6bn equity into Fiat India and TMFL in FY11
and gave support via loans to Tata Motors (Thailand) and Tata Hispano.
Some plans being formulated to derive synergies from JLR for India
Tata Motors is making plans for a joint engine development program with JLR with
facilities in both UK and India. Despite the diverse markets that both entities
serve, we believe that such cooperation should eventually improve Tata’s product
offerings in India, which is crucial given Tata’s fast weakening franchise in India’s
car market. In JLR, CWIP has risen sharply primarily due to product development
spend, which points to a sharp increase in amortization charges in coming years
as the product development cost moves from CWIP to Gross Block. The lack of
mention of strategies to arrest falling car market share in India came as a
surprise. Commentary on global auto demand is cautious.
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