strategic analysis of tata motors with emphasison jlr acquisition
TRANSCRIPT
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Strategic Analysis Of TATA Motors with special emphasis on Inorganic Growth Strategy
Sibasis Mohapatra UM15111
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INDUSTRY ANALYSIS
Industry :- Automobile (Passenger Vehicles & Commercial Vehicles)
Size Of Industry:- Global – 900 billion dollars (2014-2015 data) India- 150 billion dollars (2014-2015 data) which is 7.5 % of India’s GDP in 2014-2015
Stage in Growth Cycle – In transition towards maturity stageKey Growth drivers Rationale Vehicle penetration Economic segment
Vehicle penetration is still low. Only 18/1000 people own a 4 wheeler vehicle in India. But, with the changing economic scenario, the numbers have a great potential for improvement.Indian population is likely to move up the income curve. There has been a mass exodus of population from lower middle class group to upper middle class. Thus, implying that buying power has increased.
Critical Success Factor identified RationaleCSF 1: operational efficiency Given the highly competitive landscape of the industry, operational efficiency is key
for this industry. Efficient operation translates into competitive advantage in the market, as can be seen from the Japanese auto giant, Toyota.
CSF 2 :Constant innovation The consumer preference changes rapidly in this industry. Therefore, it’s imperative for the company to constantly reinvent itself. Product development thus, is of prime importance and models need to be renewed regularly.
CSF 3: Strategic Alliances, Flexibility, M&As
In the emerging market, companies need to adapt to localization and flexibility to gain market share.
CSF 4: Distribution network As automobiles are not sold directly to customers, auto manufacturers rely on franchised dealerships to provide local showrooms. These dealers must be knowledgeable and reputable to sell cars, which is essential for the automaker.
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MARKET ANALYSIS BASED ON CSF
Contribution<1.5 low<=2 Medium>2 High
41%
14%
12%
15%Market share % ( No. of units sold)
Maruti suzuki HyundaiM&M TATA Motors
32%
27%
23%
18%
Market Share % ( Luxury)
Audi BMW Mercedez JLR
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Industry Average of Top 5 Firms or players serving 75-80% of the market Market Leader
Category Indicator 2011-12 2012-13 2013-14 2014-15 (till Q3) 2011-12 2012-13 2013-14 2014-15
(till Q3)
Solvency Ratios
Debt-to-assets ratio
0.183333 0.163333 0.166667 0.156667 0.2 0.2 0.21 0.23
Debt-to-equity ratio
0.973333 0.916667 0.733333 0.84 1.55 1.53 0.99 1.36
Interest coverage
ratio45.45667 71.28 81.89333 95.45333 1.99 1.58 1.39 5.32
Profitability Ratios
Gross profit
margin33.93667 35.50333 35.18333 36.19333 34.41 36.55 38.3 39.23
Operating profit margin
7.86 7.35 7.406667 9.183333 4.67 3.41 3.15 9.82
Net profit
margin7.403333 6.52 6.736667 6.086667 6.86 4.68 5.58 5.31
Return on assets
(ROA)11.89667 10.65333 10.63 10.66 8.8 5.48 6.42 6.1
Return on equity
(ROE)40.73 29.99 27.66 24.93 40.54 24.46 25.09 23.74
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KEY TRENDS AND POLICIES IN INDUSTRYIndian luxury car segment is growing at a CAGR of 21% and SUV segment at 18%
India 12th largest in terms of HNI population which is growing at CAGR 20.2%
Gross turnover of industry rising at 6% CAGR
Growth trend in various segments
Government initiative to promote use of hybrid fuel100% FDI via automatic route and reduction on excise duty from 12 to 8% under “Make in India”Export volume rising at 17% CAGRUnder Union Budget 2015-16, the government has announced to provide credit of USD14100 tofarmers to boosts the tractor segment
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The firm should be aware of governmental rules and regulation governing the production of cars, such as fuel efficiency , vehicle emissions, safety and standard issues .
Economic factor, influence the industry directly. The fluctuations in inflation, and growth directly affect the purchasing power and thus, the industry.
Automobile industry are a major contribution to pollution, which lead to respiratory and skin related diseases . Apart from this, traffic jams and road blocks are also major effects.
The automobile industry constantly looks for technological advancements. Cars manufactures are starting to introduce Alternative Energy Vehicles, which are using electricity only (rechargeable batteries), fuel cell, hydrogen, solar or hybrid.
Environment pollution, is one of challenging issues threatening the world, car manufactures should pay attention in it issues, by transforming their technology into alternative energy vehicles, reduce emissions
The firm should comply with all laws and regulation with its operations, such as gas emission laws, safety and standard issues, vehicles regulations, compatibility spares manufactures
PESTEL ANALYSIS
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TIMELINE OF TATA MOTORS
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CORE COMPETENCIES
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MARKET EXPANSION
TATA MOTORS LIMITED JAGUAR LAND ROVER
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43.2592592592
593
27.4567901234568
18.4691358024691
4.83950617283951
2.666666666666672.271604938271610.88888888888888
90.14814814814814
8
Luxury Goods
Luxury Cars Personal Luxury goodsHotels FoodPrivate Jets FurnitureYachts Cruises
SECTOR PERFOMANCE IN NICHE MARKET SEGMENT
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STRENGTHS TO COMPLEMENT THE OTHERS OPERATIONS
JLR’s MAJOR DOMINANCE
TML MANAGEMENTS STRONG EXPERIENCE
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LOW
MEDIUM
HIGH
DISTRIBUTION CHANNEL IN EMERGING ECONOMIES
HIGH
JLRAUDIBMW
TMLMaruti suzuki
LOW
MEDIUM
HIGH
DISTRIBUTION CHANNEL IN EMERGING ECONOMIES
HIGH
Maruti suzuki
TML + JLR
AUDIBMW
PRICE
STRATEGIC GROUP MAPPING
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LOW
MEDIUM
HIGH
MARKET SHARE IN DEVELOPED ECONOMIESHIGH
JLRAUDIBMW
TMLMaruti suzuki
LOW
MEDIUM
HIGH
MARKET SHARE IN DEVELOPED ECONOMIESHIGH
TML + JLR
AUDIBMW
PRICE
MarutiSuzuki
Country of Investment
Category of Investment
Industry Reward to Risk Ratio (A)
Country Reward to Risk Ratio (B)
Risk Adjusted Rewards ( 0.65A + 0.35B)
Product Market Investment Strategy
Investment Rationale
United Kingdom
Luxury Autos 1.03 1.2 1.09
Score-69.45
Overall Ranking-2
Acquisition New market creationProduct diversification into premium segmentHeavy addition to top line
PRICE
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KEY ASSUMPTIONS Buying firm Target FirmExpected Growth rate for next 5 years
12% 20%
Expected Growth rate for next 5 years
10% 7%
Risk premium 5.5%Current risk 6%Final Valuation 2.7 bn $Cost Synergy 1.17 US bn $
VALUATION & FINANCING
Discounted Cash Flow Model was used for valuation & calculation of cost synergy
Amount paid 2.4 bn $ + 600 mn $ (towards JLR pension fumd)
Financing2.4 bn $ through equity instruments600mn $ was raised by issuing securities in foreign markets
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TATA
Motor (R
evenue
)
JLR (R
evenu
e)
TATA
Motors(
PAT)
JLR(PA
T)05
10152025
9.1
0 0.5 0
20 21.2
0.6 1.31
JLR's Contribution
2007 2015 #REF!
IMPACT OF ACQUISITION
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TATA MOTORS’S KEY PRODUCT AND SERVICE PORTFOLIO
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VOLUME
To sell 0.5 million units by 2020
Monthly wholesale sells in units
46000 Jaguar XE and Land rover discovery launchTATA Nexon series in SUVTATA Kite sedan & Hatch back seriesInternationalisation of Commercial Vehicles segment
MARKET SHARE To consolidate the pole position in Commercial vehicle segmentTo be within top three passenger vehicle player by 2020 To be the leader in defence sector
Percentage share of market segment
75% 10% 60%
Customisation of HCV, LCV sector. Increased focus on better designs & fuel efficiency. Investment on ULTRA & PRIMA segmentLaunch of new products, improved dealership network, AMP ArchitectureCumulative investment of 2000cr/year into the prospective 100bn$ industry in terms of R&D and manufacturing facilities
CUSTOMERS To top the automobile industry in terms of customer satisfactionUnderstand product/service feedback; redress complaints; suggestions on product development
Customer Satisfaction IndexJD work survey
920/1000 Online common CRM platform for real time feedback from customers & channel partnersTo triple sales/service network
DEALERS Building capacity and technical know-how; improving and delivering better response to customersTo do better than industry avg. of 827/1000
Dealer satisfaction Index Improve from 756 to 900/100 To integrate all dealers into CRM-DMS.Better support from TDCLBetter support from TML staff, training facilities, improved warranty and after sales services
FINANCIAL To reduce trade receivablesROCEProfitabilityAsset utilizationOperating profit per shareInventory turnover
% decreasePercentageOperating MarginTotal Asset turnover ratioINR/shareInventory turnover ratio
10%30%15%4.530010
VAVE programme to cut down cost of 500cr in FY 2016 and 900cr in FY2017Application of lean systems in SCM and process engineeringCost reduction via proper sourcing of materials & economies of scaleProper quality management system
Strategy Objectives Measures Targets Initiatives
BALANCED SCORECARD ( VMCDF Model of TATA MOTORS)
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STRENGTH Tata’s strong management capability
Strong monetary base to invest
Synergy due to Corus, TACO and TCS
Experience in growing market like India
New product development and brand building experience
JLR would give TAMO an in-house R&D and designing capabilities
Better utilization of cash reserves available with TAMO
Reduce production cost of JLR by synergizing better with other TATA cos like Corus
Acquisitions like JLR will help TAMO in competing with brands like Merc. etc.
Proven Management and brand building capabilities would facilitate faster JLR turnaround
Strong financial muscle will help TAMO to invest in R&D and produce new better products
Improve risk profile of TAMO with diversification in different markets
WEAKNESS Weakness Inexperience in
Handling luxury automobile brand
Inexperience in turning around loss making company
R & D and designing capabilities
JLR experience and designing capability would help TAMO in improving their existing products in Indian markets.
JLR’s strong brand image will ease acceptance of TAMO in international markets
Keeping the existing management team of JLR make turning around
easier
Leverage experience gained with Tetley and Corus in allaying market apprehensions about acquisition
Make Jaguar design center as their global design HQ
Use Jaguar channel to distribute TAMO brands without merging the brands
SWOT ANALYSIS
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OPPORTUNITIES •Rising appetite for luxury automobiles in growing markets like India and China •Established European brands available at affordable investment•Support from Jaguar in Technology, Engine, IT, Accounting•Complete product line with addition of luxury brands•Access to European & American market
THREAT •Volatility in market driven by new products •Strong presence of competitors like Mercedes, BMW, Lexus and Infinity •Receding sales and brand image •Downturn making Investment riskier and costlier •90% of TAMO revenues comes from one market alone-India
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4215
108
Market Share %(Passenger Vehicles)
Maruti Suzuki HyundaiM&M TATA Motors Ltd
42%
23%
17%6% 3%
Market Share % ( Commercial Vehicles)
TATA MOTORS M&MAshok Leyaland Volvo EicherForce
COMPETITOR ANALYSIS
TML (CV) M&M(CV) TML(PV) M&M(PV)0
10
20
30
40
50
60
TML vs M&M % Market Share
2013 2014 2015
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TATA MOTORS MAHINDRA & MAHINDRACSF MEASURE SCORE WEIGHTAG
ECSF MEASURE SCOR
EWEIGHTAGE
Operational Efficiency
Operating Margin
0.16 0.25 Operational Efficiency
OperationalEfficiency
0.19 0.25
Constant Innovation
New Product Launches
0.12 0.3 Constant Innovation
New Product Launches
0.21 0.3
Flexibility & Strategic Alliances
No. of JVs , alliances ,acquisitions for strategic competitive advantage
0.14 0.2 Flexibility & Strategic Alliances
No. of JVs , alliances ,acquisitions for strategic competitive advantage
0.12 0.2
Dealership CSI , DSI, SCM
0.17 0.25 Dealership CSI , DSI, SCM
0.2 0.25
Total Score 0.59 1 Total Score 0.72 1
COMPETITOR ANALYSIS ON BASIS OF CSF
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M&M TATA MOTORS
Operating Margin % 12.1 14.9
Net Working Capital to Sales % 8.4 0.6
Debt to equity ratio x 0.9 1
Sales to assets ratio x 0.8 1.1Return on assets % 6.6 7.9Return on equity % 12.1 24.9Return on capital % 16.6 23.6Exports to sales % 3.1 1.5
COMPETITOR ANALYSIS (FINANCIAL)
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COMPETITOR ANALYSIS OF JLR
32%
27%23%
18%
Market Share % ( Emerging Econom-ies)
Audi BMWMercedez JLR
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JLR AUDICSF MEASURE SCORE WEIGHTAG
ECSF MEASURE SCOR
EWEIGHTAGE
Operational Efficiency
Operating Margin
0.22 0.25 Operational Efficiency
OperationalEfficiency
0.2 0.25
Constant Innovation
New Product Launches
0.24 0.3 Constant Innovation
New Product Launches
0.24 0.3
Flexibility & Strategic Alliances
No. of JVs , alliances ,acquisitions for strategic competitive advantage
0.15 0.2 Flexibility & Strategic Alliances
No. of JVs , alliances ,acquisitions for strategic competitive advantage
0.16 0.2
Dealership CSI , DSI, SCM
0.24 0.25 Dealership CSI , DSI, SCM
0.24 0.25
Total Score 0.85 1 Total Score 0.84 1
COMPETITOR ANALYSIS ON BASIS OF CSF
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• Nano• HCV• MHCV• LCV• Trucks & Buses
• Passenger Vehicles
• Defence Purpose Vehicles
• Jaguar Land Rover• Municipal Purpose
Vehicles
STAR ?
DOGCASH
COW
BCG MATRIX
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Near Term (<- 2 years) Mid Term (2-5 years) Long Term (5-10 years)
Growth Areas
Passenger Vehicle segmentCommercial Vehicle Segment
Defence/Municipal purpose Vehicles
Hybrid fuel powered Vehicles
High Level Tasks
Design & launch of NEXUS series SUVs and KITE series Hatchbacks and carsCustomisation & Internationalisation of MHCV & LCV brandsJaguar XE and Land Rover Discovery launch
Capex investment of 900 cr INR /YearTarget order bookings of 6000cr INR/year3.5bn$ investment in JLRLaunch of JLR’s Global Fleet StrategyAMP & VAVE Strategy
Design of phase 2 of oneCAT VehicleFinal design and launch of SIGNA range of commercial vehicles
Potential Benefits to be achieved
Increase in sells of Passenger & Commercial VehiclesIncrease in export of Commercial VehiclesMarket share growth of JLR
TML will tap into 100bn$ defence sector in IndiaIncreased production and improvement marketing channel for JLRCost reduction(Operations)
More investment towards sustainable development
Rewards
Increase of market share in passenger vehicle segment from 5.7 to 10%Consolidation of top position in Passenger vehicle segment at 75%Increase of JLR sales by 17%
30-40% revenue from defence segmentJLR sale will increase from 17% to 25%Cost reduction to the tune of 900cr INR
First mover advantage in this sector1st ever company to launch a vehicle powered by Air
Risks
Increased competition Economic slowdown in Brazil, China and Europe
Increased competition Economic slowdown in Brazil, China and Europe
Investments are hugeExact timeline of market need not guaranteed
Key Success Factors
Improved dealership and services network to push sales of new productsAgile product strategy team
Improved design & service in defence sectorRobust supply network to cater to global fleet demand of JLR
Collaborative R&D b/w TML & JLR
ROAD MAP FOR FUTURE
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STRATEGIC ROAD MAP FOR FUTURE