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Tata Motors: Will You Play Devil’s Advocate for Me?

Rolf Dobelli wrote this in The Art of Thinking Clearly

Have you ever bitten your tongue in a meeting? Surely. You sit there, say nothing and nod along to proposals. After all, you don’t want to be the (eternal) naysayer. Moreover, you might not be 100% sure why you disagree, whereas the others are unanimous – and far from stupid. So you keep your mouth shut for another day.

When everyone thinks and acts like this, groupthink is at work: this is where a group of smart people makes reckless decisions because everyone aligns their opinions with the supposed consensus. Thus, motions are passed that each individual group member would have rejected if no peer pressure had been involved.

Nowhere do you see groupthink than in the world of business and investing.

Whether it’s the case of a CEO allocating capital, or an investor doing so, it’s easy to fall into groupthink and allocate precious cash on things that “seem” right because others also think so, rather than those that “are” right.

This cartoon does a great job of explaining groupthink in the stock market….


Inversion and Groupthink
As Charlie Munger has said so often, a lot of bad decisions in life and investing can be avoided if we use the power of inversion to understand what may not work rather than only focusing on what may.

One way you can practice the law of inversion in investing is by reversing the question “Why I should buy XYZ stock?” to “Why I should not buy XYZ stock?”

Buffett did this in his 2013 shareholder meeting, when he invited one person to play the devil’s advocate and raise bearish points on why investors must NOT buy Berkshire’s shares.

As he wrote in his 2013 letter to shareholders – “To spice things up – we would like to add to the panel a credentialed bear on Berkshire, preferably one who is short the stock.”

He then selected a noted money manager Doug Kass to bet on Berkshire’s stock’s decline and to challenge the value of the stock that had gained twice as much as the US stock market in the preceding year.

Now, while Kass may have had a tough time being a bear on Berkshire – a company that is such a treasure chest of assets and earnings stream – it’s easier to find reasons not to buy most other stocks out there.

Will You Be a Bear on Tata Motors?
I first bought Tata Motors in March 2009 at Rs 28 and sold it at Rs 70 in May 2009, thinking the stock had run up too fast too soon given that the business fundamentals were still weak, especially in the company’s global markets.

Then as its subsidiary JLR was just starting to show some sparks of improvement, I bought the stock again in January 2012 at Rs 193. The stock is up 95% since then, again thanks largely to JLR.

So, as a shareholder in the company, I am happy to read things like this…


…sad to read numbers like these…


…and then happy again to see this…


Tata Motors’ standalone financial performance worsened recently with the company’s domestic business (excluding JLR) reporting a big quarterly loss in September 2013. In fact, the domestic business has suffered losses for three of the past four quarters.

Despite this, and driven largely by JLR’s success, the stock has appreciated around 60% since its low in April 2013.

I still find the stock’s valuations to be enticing enough, especially given these reasons…

  • The current valuations of 10.5x P/E just factors in the JLR turnaround and excludes any assumption of improvement in the standalone commercial vehicle (CV) and passenger car businesses
  • If one were to assume that the domestic business returns to its long-term average profits it has earned over the past 10 years, excluding any growth in the future, the valuations are still cheaper at around 7-8x P/E.

  • Historically, when the Indian economy has turned around, CV sales have been the first to rise (and rise sharply) due to the build up of a lot of pent-up demand. Given that the slowdown has been long this time, the pent-up demand is only expected to be stronger.
  • CV sales are also a factor of interest rates as a majority of purchases are financed. Thus, any decline in interest rates would tremendously boost demand for Tata Motors’s vehicles.
  • Despite losing some share of the domestic CV market, the company is still the market leader by far and would be the biggest beneficiary of the economic recovery – which is not factored into the price.
  • I see the company in a great position to turn around the domestic business (which will come through at some stage), given the way it has turned around a bigger and more dangerous animal in the form of JLR. Plus, the company is yet to fully benefit from the transfer of JLR technology to its Indian business.

Given this, I bought some more of the stock recently and still looking to buy more.

Now I want you to help me avoid any confirmation bias by playing the devil’s advocate and challenging my thoughts and assumptions on the company.


You tell me reasons why I must not buy more of Tata Motors and instead sell what I have.

I see this as an interesting exercise, and plan to extend this to a lot of other stocks in the future. This, I believe, would help us tune up what Howard Marks calls our “second-level thinking”.

As he wrote in his brilliant book, The Most Important Thing

What is second- level thinking?

First- level thinking says, “It’s a good company; let’s buy the stock.” Second- level thinking says, “It’s a good company, but everyone thinks it’s a great company, and it’s not. So the stock’s overrated and overpriced; let’s sell.”

First- level thinking says, “The outlook calls for low growth and rising inflation. Let’s dump our stocks.” Second- level thinking says, “The outlook stinks, but everyone else is selling in panic. Buy!”

First- level thinking says, “I think the company’s earnings will fall; sell.” Second- level thinking says, “I think the company’s earnings will fall less than people expect, and the pleasant surprise will lift the stock; buy.”

In short, second-level thinking means looking at the other side of the picture by inverting our thoughts or inverting the questions others are asking.

So when…

  • I say, “I think Tata Motors is a good stock to buy for so and so reasons,”
  • You say, “I think Tata Motors is not a good stock to buy for so and so reasons.”

Tell me in the Comments section below the reasons you think I made a mistake to buy Tata Motors and instead why should I be selling the stock.

I am all ears.

Statutory Warning: My analysis may be injurious to your wealth, if you don’t use your own brain before acting on it. So please be careful! And by the way, please don’t treat what you read here as a recommendation to buy or sell any stock.

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.

Comments

  1. Vinay Bawri says:

    Hi,

    My view is that if Tata Motors is a trading call, hoping for an uptick in the economy, then I don’t have much expertise in that as one has to track monthly inventory, sales etc., but if it is a long term bet, I would never invest in it as these kinds of companies are wealth destroyers, always have cyclical sales and huge debt, fierce competition in the industry and no moat, things which Buffett would look at and probably not invest.

    • Subaru was part of cyclical auto industry in 1977 in USA. Market sentiment was over all poor.

      Any guess for next 9 years return?
      It delivered 156 fold return(yes no typo mistake)

      I won’t say all auto stock can deliver such results but we need to think a lot for underlaying fundamentals and future prospects for 10 years preferably. Macro situation will ask one to stay away from interest sensitive stocks. But why not use pessimism for bargain.

    • Thanks for your views, Vinay!

  2. Hi Vishal, Here is what my software says about Tata Motors at broad level as on Jan 10th. (All marks out of 100)

    1) It has a Confidence/Perception Rating of 96 which is unsurprising given its standing.

    2) Its Consolidated ratings are good. Size Rating is 100, Debt Rating is 45, Growth Rating is 93 and Profitability Rating is 40. Thus its Quality Rating is 70 which is decent. Also its Price Rating is 55 which is not really bad. Thus its Consolidated Overall Rating comes to 77

    3) However as a Standalone entity, picture is not that rosy. Size Rating is 99 but Debt Rating becomes 26, Growth Rating drops to 9 and Profitability drops to 16. Thus Quality rating becomes 21 and Price Rating reduces to 11. Thus its Standalone overall rating comes to a lowly 14.

    4) When we look at combined results, the Size Rating is 100, Debt is 37, Growth is 48 and Profitability is 30. Thus Combined Quality Rating is 47 and Price Rating is 36.

    5) This gives Tata Motors a Final Rating of 48 which is obviously not very good primarily because Standalone performance is dragging it down. If standalone component of the Tata Motors performs well or if there are any plans of merging consolidated entities in standalone biz, ratings will improve.

    Now could you please play a devil’s advocate for my software. Other tribesmen are welcome to do that too 🙂

    Regards,
    Abhijeet

  3. Karthikraja says:

    I am not sure whether my comment is opt for this place. Yesterday had a chance to see Brad Pitt “world War Z”. At one scene, One israel guy talsk about ” Tenth Man concept”. for particular problem, 9 men are having similar opinions, so thenth should have opposite opinion and he should prove with evidence such a way other opinios are not good choice. Similar way First level and second level.

  4. Tata Motors has been riding on the performance of Jaguar Landrover while its domestic business including cars and commercial vehicles is under-performing. The standalone operating margins were in single digits for last years and net margins were in less than 3% (baring few years). This level of margins and poor pricing power is not sustainable. Had this been a non-Tata company the stock would have been beaten black and blue.
    However, if we take a consolidated view (including JLR) the picture is better but NPM is still not consistent. Hopefully if JLR delivers good business across various countries it could become a global brand (its already one to an extent) and the company could focus on global business rather than venturing in to so many domestic business verticals.
    The commercial vehicle sector itself is going through a recession – in India Ashok Leyland, Tata Motors, Volvo, Eicher, etc are facing the heat. The chances of recovery are not great because some are sitting on huge inventory, some are providing discounts to push sales, etc. Its a cut-throat market and there is minimal pricing power. Add to this the high-debt that most companies have and it becomes tougher. The interest cost will continue but production and sales will slowdown unless there is a dramatic improvement in the economy.

    The only way things can improve is when a consolidation takes place (not M&A) but a case where companies stick to 2-3 verticals and dispose/close the remaining operations. For instance Tata Motors might get rid of its light commercial vehicles and passenger cars. Tata Motors is doing to many things in auto sector – instead they could stick to few verticals. Mahindra is also getting in to several segments, but they have a select or small portfolio and that helps them to stay focused. Mahindras core is tractors and SUVs, while it has a few niche offerings in other areas. Bajaj is focussed on motorbikes and threewheelers.

    Probably some focus on consolidating and focusing on few verticals will help. Else Tata Motors will survive and claim to be the leader and global player but its returns to owners and investors will be poor. The Tata empire will expand but investors will lose money. A similar story is seen at Tata Global Beverages….hopefully Cyrus Mistry will try to consolidate and clean-up these companies and restore their glory.

  5. I also own Tata Motors DVR and was looking to add more positions when the price is right. I’m underweight at the present and this may be because that I myself perceive some not so good things about the stock to be very bullish.

    1. No “exciting” new models. Others companies are doing well: Hyundai’s i20 Grand, Honda’s Amaze, Ford’s EcoSport, Nissan’s Terrano, Maruti’s Swift, etc. I myself don’t like the present line up of cars. [I’m discounting JLR models.]
    But then they’ve “HorizonNext” to address this issue.

    2. Poor domestic business due to poor sentiments, lack of new models, high interest rates and slowdown in economy. Profits are going to take a hit for another 3-4 quarters I guess.

    3. Sales/Service network is not as good as Maruti or Hyundai. Low presence in the South.

    4. Capex is planned and there are talks of negative cash flow. ROCE will take a hit in the near future.

    But nonetheless, I think Tata Motors (DVR) was a right call made. Good management, decent ROE, fair valuations (when I bought) and any future models launches are not yet priced in. India will be the highest growth market for JLR. I hardly see any Landrover in India whereas there are some Audi/Benz. LR Evoque retails for less than Rs 40 lac (not sure) and could give a run for money of those German machines.

    Maybe I’ll NOT add any fresh positions but not a sell candidate in the near future. I’m all ears myself to see what the other readers are pointing out what I missed.

  6. As you have noted else where Vishal on understanding the business of the company, if you have studied JLR success in China and understand it well enough to believe in the sustainability of moat in hyper competitive Chinese luxury auto market – you should increase your positions. If JLR (specifically J) cannot maintain growth/margins in China- what happens in India doesn’t matter that much.

    Unfortunately, my circle of competence does not include Chinese luxury auto market, China economy, China Interest rate outlook, etc.,
    I do know that most people outside China have been misjudging (either under estimating or over estimating) China – they have their unique success story and unique challenges, which are different from western markets (which is at least analyzed extensively)

  7. I still feel energy is too highly subsidised in India. So if Diesel prices increase to rational levels, transport operators will charge more to end consumers, which means demand will go down due to higher prices and lower buying power. In such a situation of lower base rate of economic growth, demand for trucks running on diesel (any “imported hydrocarbon fuel”) will come down. So Tata Motors domestic business may never see a significant growth.

    I would extend the above argument to any business that depends on significant use of imported hydrocarbons to carry on its operations, and so its growth/profits depend on increasing usage of hydrocarbons.

    Of-course, Tata Motors can create a moat by coming up with a superior breakthrough technology that significantly increases fuel efficiency, or uses alternate fuels. But one cannot make an investment on a black swan event that cannot be predicted.

    Regards,
    Rajaram

  8. Hi,

    I can think of following scenarios which can raise some doubts for investments
    1) First and fore most i am not able to convince my self why such a creditable management with global vision and now JLR in their portfolio has continued its disastrous performance in domestic market. Why it is not able to come above their Indica platform?
    2) As JLR’s encouraging performance is the driving force for the company, while company is loosing stream in domestic market. In JLR China market is the fastest growing market, so what if China puts some restriction? (some time back they have initiated similar thing in one of the city to restrict no. of vehicles)
    3) I think last year’s performance is also attributed to excellent performance of Evoque, so how is the future product pipe line? On what parameters one can assume similar sustainable growth in JLR?
    4) Operating margins will be function of sustainable volume growth, so how one should predict volume growth?
    5) I believe JLR margins benefited due to increase in volume and currency fluctuation. My worry will be how one can evaluate currency movement where 4-5 currencies are involved.

    Regards,

  9. I have not studied about their commercial vehicles and JLR. No comments there. However, as an end user and a passionate guy about cars in India, I am bearish about Tata vehicles.

    Bought an Indica in 2003 and owned it for 7 years. Yes, I was happy at that time. But will I buy another one ? NO. When I bought Indica, there was “NO” competition if you wanted a diesel hatch – the only other player was Fiat Palio, which was beyond the budget of many people at that time. There are better cars out there today from every manufacturer with better build quality, fuel efficiency, reliability, refinement and lower NVH levels. Things have changed a lot in last 10 years. To add salt to the wound, Honda has started an Oil burner. For a foreseeable period, I don’t see Tata making diesel cars comparable to Suzuki, Honda, Renault, Ford, Hyundai, Nissan, Toyota. So, no turn around in cars here. Petrol cars and Sedans – less said the better.

    Recently, my parents bought a Nano. Are they happy ? Yes. Why did we buy ? There was NO comparable offering in the market for the usage scenario. If other manufactures start making a car comparable to Nano, it could be story over for Nano. Now, Tata has launched a power steering Nano. It actually addresses the Achilles heels of Nano. The on-road price will be close to 2.8L in most cities. But, we need to see the market response.

    Summary, the only bright spot I see in terms of turn around is Nano. Unfortunately, Tata saw the market for a diesel hatch and a car like Nano but either the competition has killed them (Indica case) or the execution has been poor (Nano case), 2001-2006 was a wind fall for Tata till the competition woke up.

  10. The comment may seem naive but I simply cannot think of buying a Tata car for my personal use. It feels so muck like car of a ‘government company’. The company does not seem excited about it’s car biz. The aggression you see in Maruti or Hyundai, Tata is no where near. I may be wrong but that’s my perception and I am sure I am not alone. In my friend circle also, when someone asks for suggestions for buying new car everyone will suggest cars of maruti, hyundai, chevrolet, nisaan etc…. I haven’t heard anyone even mentioning (let alone recommending) a tata car nowadays! It feels like whatever market they had in past was due to lack of competition as someone mentioned above.

    This may not be an only reason to not buy a stock but the company somehow does not look exciting! The feeling tata motors (india operations) give is their market share will only go in one direction!
    “Look around you when you go shopping.” – Peter Lynch 😉

    I hope the local turn around they are trying brings about some change! (I agree it might be too late to buy the stock if it happens!)

  11. Commercial vehicles can be broken down in 2 parts (correct me on this but you will get the idea) – bus and trucks.
    Go to South India and you will realize that buses are remarkably dominated by Volvo and Mercedes. As northern states’ economy improves, private transporters will shift to Volvo and Mercedes.
    And the quality of Tata buses is really bad. In Bangalore, the Tata Buses look older than the volvo buses which were bought much earlier than the tata ones by state govt. for city transport.
    In truck segment, I am not so sure as the focus is on reduced cost of transport rather than luxury/spending power of travelers/users

  12. why not ashok leyland if u want to play india cv recovery?

  13. Tata Motors moats would be (i) Trust in the name (ii) production facilities (economy of costs) (iii) the vast distribution and repair network. These are potent pluses for a auto company. I would think Maruti benefits from the same.
    The weakness have been (i) design (and improvements have been slow) (ii) the diesel vehicles make a clear rattling sound unlike the marque names where the diesel engine makes much less noise and hence lesser vibrations (iii) almost any driver will tell you if its a tata motors car it will squeak (funny sound) from somewhere or the other (iv) change in price difference between diesel and petrol (they could not have done much about it) has impacted diesel vehicles demand the mainstay of tata motors.
    Given the group’s and the company’s strengths like design capability and launch of Indica and then Nano, I see a brighter future.
    Give it time and time your purchase price, is what I would say.
    JLR is in the premium segment and will continue to be there, while domestic products are in the mass segment and need to improve a lot.

  14. You believe the stock is undervalued because of a possible turnaround in the domestic business. Implicitly you assume that JLR is fairly valued or at least not over valued. You should consider why that assumption may not hold. The luxury car industry globally has been extremely cyclical historically and JLR has been riding a strong global up cycle since 2009 (its own product development efforts have obviously helped it take share as well and benefit much more). So the question is where we are in the global luxury car cycle and at a second level where will JLR’s share of luxury sales go from here. The answer is not that obvious and I would take the other side of the bet. It seems more likely than not that we are at the fag end of the luxury car up cycle. I also worry about how inequality has increased dramatically globally as the rich have benefited disproportionately from easy monetary policies; what happens if this trend reverses or at least stops? On the market share question, JLR competes against established players who invest significantly more in R&D in absolute terms. How much further market share are they willing to cede to JLR? It is not out of question that they actually start clawing back some share.

    Also, on the domestic front, the profits to Tata Motors may be lower in the coming up cycle as the industry moves from an effective duopoly to a multi-player market, even though TM is likely to remain the leader.

  15. Why you should sell Tata Motors – Just three points!

    Trust that your numerical analysis is throwing a buy, Why would I sell

    1. Domestic CV volumes continues to contract not only because there is intense international competitors but also as it’s local brands don’t have substantial mind share of consumer. I don’t foresee exciting product launches as well
    2. Jaguar news is well widely received and should already be factored in market price , there are very slight chances of positive surprises in forthcoming quarters on this front.
    3. Lastly and most importantly all the brokerage houses are crying “Buy” – a sure shot sign that something is definitely missing/fishy

    Cheers 🙂

    • Thanks Vivek!

      1. When I say CV, I largely mean medium and heavy vehicles to transport goods (trucks). And I see Tata all around me, despite competition from Ashok Leyland and Volvo.
      2. I am not worried about the forthcoming quarters. I am looking for the coming decade.
      3. I don’t worry about what brokers are saying. I wrote what my independent analysis is saying.

  16. Ruchir Agarwal says:

    Just because TM still has the highest share in CV, it is not guaranteed to gain most (or much) in case of economic revival. I think the company which has invested most in capacity enhancement and product quality/mix will be the winner whenever the economy revives.
    So it would be a good idea to check how much investment its competitors are making.

  17. SG Jaclyn says:

    Reasons for not buying Tata Motors.

    1. Based on your past transactions on this company, you don’t seem to have the conviction to stay invested in this company for a decade or two. Instead you you seemed to be focusing too much on the short term trends. That means you don’t have to stay invested in the company.
    2. If you investing based on the expectation that the economy would turn around in few months or years, your prediction is no different from others. That indicates your criteria are not sound.
    3. If you have only 20 investment choices to make during your whole life, why waste the opportunity on a cyclical industry which has already proven to be highly competitive without any substantial moat even for reputed names like BMW & Benz.

    • Okay, let me add one thing here. I had sold off almost all of my stocks (and they weren’t many) between May and August 2009 as I was in process of repaying my home loan. Tata Motors was first off the block as, I mentioned in the post, the stock had run up too fast too soon.

      Tata Motors has been a part of my core portfolio since I bought it last time in Jan. 2012. And if I did not have conviction in the story, I wouldn’t have added more as I also mentioned in the post.

      Finally, in my post, I have not mentioned any prediction of the “timing” of the turnaround in the economy for I am not capable of doing that. I just mentioned that it would happen. When? I have no clue!

  18. Hi Vishal,

    TM is a stock i like and have owned it earlier, and had to sell reluctantly due to need of cash. I owned it during 280-290 period and sold it on a loss.

    Coming to your query, as a devil’s advocate i would raise the following questions-

    1.For a face value of Rs.2 it has already gone from 28 to around 390 presently, which is a good run. Unless it has potential to give at least 5x-10x more from here, it won’t be a great buy at this point .
    2.Are other CV makers not hiring strategy consultants like Roland, and is Roland’s business advisory a non-failing service?
    3.How sustainable is JLR’s successful run overseas. Are other brands not catching up?
    4.I was just watching Jack Welch’s interview in Bloomberg before i sat down to write this, he says there’s still no demand in US. How can we expect JLR to sustain it’s run while a big auto consuming nation like US isn’t doing well in terms of demand.
    5.I feel Cyrus Mistry is still a learner and doesn’t match upto Ratan Tata. He will have a long learning curve if not ending up as a failure. His selection as chairman of Tata sons is purely driven by community factor than business related factors. I won’t place much confidence on his abilities.
    6.I agree when you say one can only find Tata trucks around, but don’t discount the slow and steady increase in Bharat Benz trucks. Who knows they may overtake TaMo or at least give a stiff competition. And mind you, Ashok Leyland , Volvo and Eicher are all led by strong managements. If you were to ask me to pick the better CEO among R Seshasayee and Cyrus Mistry, my blind choice will be the former.

    These are just some top of the mind(devil’s) questions. Hope they make you to revisit your analysis.

    Thanks,
    Padmesh.

  19. I’m a bit biased or rater dont like Commercial Vehicle industry particularly the trucks, lorries, etc. I’m not an expert but this is what I found from news and other sources:-
    1) The commercial vehicle companies or manufacturers (esp. Indian ones) are not having a strong MOAT. Even if there is a moat its only a false moat because the franchise/brands are not translating in to higher margins or returns.
    2) There is too much of competition in this space with entry of several domestic as well as global players.
    3) In automobile sector in general the consumer’s bargaining power is very powerful – they want Paisa Vasool – more features at lesser price. Even people who buy mid-sized cars, suvs, etc want more for less so margin expansion is limited
    4) In automobiles companies have to continuously launch new models, invest in R&D, technology, etc. In CV space the demand is highly dependent on the economy and prosperity of people in agriculture, transportation, manufacturing, etc. Since most customers in CV segment are businesses (ranging from small firms to the biggies) they will not start buying unless they see a need for the product or a recovery in their business, expansion, more orders, etc.
    5) In CV segment particularly HCV given its high-ticket and longer life it takes a longer time for replacement demand to pickup. We see a lot of old trucks and some regulation is required to dispose off old vehicles – to reduce pollution, accidents, avoid breakdowns, etc. A regulation to limit the use of vehicles say beyond 15 years will help in one way.
    6) When well known players like Ashok Leyland are in a bad situation, the story is no different for other players. Multinationals cos are also coming in to this space to grab the premium market share for long-lasting high-end vehicles, so what is left is only the low-end products where pricing power is limited.

    Turnaround may happen but long-term investors are not going to benefit, except for seeing a short term bump in price, while the fundamentals of the business are weak. I remember Mr.Buffet talking about the cheap/bargain businesses (advocated by Ben Graham) which I’m putting in a different way. You may think that the company can provide a sure-shot 10% return within a year or a few months, but what if it delivers 10% returns in total for the next 3 years. This poor return is a positive scenario – imagine your situation if the scenario is average or negative. As rightly said “There are many cockroaches in the kitchen”

  20. 1. Is valuation right?
    Have a look at this – ( December-13 sales figures as compared to December-12)

    Domestic sales are dismal .Well i am concerned not only for TM but for complete auto industries at-least in medium term. i feel current valuation does not match up with sales figure.
    I was doing some research as a buyer in last three months for cars. Sales guys were telling me car dealers are letting us go(firing),decreasing our salaries etc as there are no sales. Reason may be increasing petrol prices or interest rates or overall inflation or too many vehicles on roads and not a good driving experience, companies appreciating car share-pools, rising home prices making people think- i don’t know.

    It will bounce back but when we don’t know. so if we see in at-least in 1 year i do not see recovery then Is this valuation right?

    2. Is company right?
    Tata trump card could be two- Nano or Jaguar. Jaguar showing good numbers- i assume it will continue.Good Margins even less sales could bring value on table. I have seen Jaguar- Product is really really good-it breaks the clutter of audis, mercs, Vw which we see every day these days. I am optimistic on jaguar.

    Nano- Nice car- but very poor branding- i do not know will they be able to change the perception of customer that it is a cheap car for lower class people. They are trying hard though. Even then i hope margins will be low and they really need to sell too many in numbers to increase share holder value. if it is a good product may be it will stand the test of time(Nano Twist- a beginning- it will take long long time to change perception)

    I also feel in Auto market, Only companies will last for multiple years which are future ready due to higher petrol prices & inflation as well. In India i think Mahindra is getting future ready(Reva etc). I do not know much about Tata.

    Leader of Tata Group is new, unproven – would you want to wait to see at-least changes he is doing are positive in line of your thought process? Or is he making Tata Motors a frog in warm water?

  21. Swaminathan says:

    As business it is not simple and capital intensive. Tata Motors – we are betting on future revival over fundamental valuation. How long can JLR dominate is a open question. Car, SUV…tata motor no way it is going to gain back the customers, even in commercial rental people prefer Etios, Logon etc over Indica..I have started seeing Volvo commercial vehicles on the road. Tata motors needs to improve their quality to compete with volvo which will hit their margin. Debt may not look big due to JLR sales but how long the dominance can continue. I love tata group but may not be tata motors. I may be missing something but as a business I am not comfortable.

  22. I don`t think tata motors valuation justified buying at this level. There is no mot as far as business is concern in passenger vehicle, in fact they are far behind company like Maruti in india. Nano as a brand turn out to be failure. Only CV are the real hope for the company that too now find some competition. At the moment trading at around 370 margin of safety is very little.

  23. vishal , Tata motors story esp in your case reminds me of classic case of newton investment in south sea industry . I hope it does not happen with you

  24. Hi Vishal , I bought and still hold Tata motors from 2007 and not planning to sell it in near future . I live in Melnourne and I can tell you 1st hand information that every third new SUV here is land rover ( Range rover ) Their new models are amazing and when we takl about Moat , I think JLR has a significant price moat . JLR is cheapest and most reliable in the segment they deal with . My question to you is should I shift my holding to Tata motors Dvr or should i still hold my tata motors ?
    I remember the headlines in Economic times when Tata Motors bought JLR , They considered it the biggest gamble of Tata group . I have very high regards for Tata group but I still think that Anand Mahindra is more aggresive person ( As Mr Ratan Tata also mentioned him in his farewell speech ) . Ashok leyland too is very well managed company . So I am very positive on the future of JLR but Tata motors domestic business is facing real problemsand serious competetions .
    Let me know whats ur take on this .
    Thanks .
    Bhavdip

  25. Hi,Vishal
    Wont it be a good idea to buy Shriram Transport Finance Company to play the turnaround? there is no fear of who’s truck is being bought (tatas,leyland or any other)If interest rates turns around,this company will be in a good position.Pe is below the average lows and the company has performed well in the past.They have efficient management.So if we are to play the turnaround story,my pick will be Shriram Transport Finance Company than the tatas. My idea is like instead of investing in real estate companies,invest in housing finance companies 🙂

  26. Dilip Avadhani says:

    Vishal – What P/E are we giving tata motors ? This is probably one stock that is constantly moving north but PEG ratio is much higher than 3 (upper limit).

    • Dilip, I have not assigned any specific P/E number to the business. But at 10x P/E, I am not sure if the PEG would be >3x, because this assumes growth in the future to be just around 3%.

    • Dilip, I have not assigned any specific P/E number to the business. But at 10x P/E, I am not sure if the PEG would be >3x, because this assumes earnings growth in the future to be just around 3%.

      • For the past 2 years Tata Motors is surviving on Jagaur sales. Their sales on other models is quite in the red. Jagaur and Landrover buy is probably a steal in the long run. If their India story picks up, this will zoom further but this will require a few iffs to come their way. This is a big landmine in Cyrus’ path.

        Based on Margin of Safety, is Bajaj Motors or M&M, not a safer bet ? All the 3 have good governance and corp leadership.

  27. Nasirul Amin says:

    Hi Vishal,

    As a long term investor should we take position in Tata Motors DVR, which trades at 50% discount to ordinary shares and has 1/10th voting rights but 5% extra dividends. I believe if the gap narrows a bit more over 3-5 yrs period when the ordinary shares too grow might work in favour of the DVR holders. Remember Tata Motors DVR were issued at approx 10% discount. Please share your thoughts.

  28. Shailesh Prabhu says:

    Dear Sir,

    I suggest you start the same debate now after you study Ashok Leyland. For a Re.1 FV scrip it is trading at a PE multiple of over 100. The Q3 results were good bcse of the excise duty discount to be withdrawn. The rest is all speculation. They have high interest costs and have been playing with inventory in their quarterly results and extraordinary incomes. Your readers will do well to now sell Ashok Leyland and hedge by buying Tata Motors to play the CV industry as their Balance Sheet is far more stronger. – regards Shailesh Prabhu

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