Expert Analysis of the Global Macro Events & News affecting the Indian Markets – 15 Feb 2024

Green Portfolio Smallcase – Periodic Returns

Hailing Tata Motors

Ladies and Gentlemen, presenting to you, the star of the event – Tata Motors. Oh, what a sight it’s been! Just a year ago, people invested in Tata Motors were bummed out and miserable because when a company like Tata Motors, belonging to India’s most trusted House of Tatas does not perform, it makes people question every inch of their investment strategy, especially the ones who are very conservative in their investing approach. Funny how a year can make all the difference. 

Stuck at 400 levels, now those shares have climbed to 900 levels. 

The shining star of markets not only saw a meteoric rise in its share price but also reversed the fortune for Japanese car maker, Maruti Suzuki. This pivotal shift came after Tata Motors became the most valuable auto company in India, according to market capitalization, a spot that was long held by Maruti Suzuki for 7 years. 

As we delve into this electrifying story (pun intended) of resilience and innovation, read this newsletter to know what worked for Tata Motors, from a period of uncertainty to becoming a leader in India’s automotive revolution. Apart from this, we will also be sharing 2 minutes of interesting bits on the EV Industry. So let’s go!

They say “Innovation is the ability to see the change as an opportunity”. Ya ya, it’s the first line on the internet when you search “quotes on innovation” but we can not ignore its relevance, especially in the case of TaMo. TaMo struck the chord right with its EV Vehicle, and this is evident from their results. Okay, rather than jumping directly to its EV segment let’s discuss in pointers that back the phrase – Slow and Steady wins the race!

1. Unprecedented Financial Triumph came after the company released its Q3 FY24 results. Reporting a 25% jump in revenues and a 134% jump in net profits, TaMo won the automotive game backed by strong demand for passenger and commercial vehicles, price hikes, and superior product mix. EBITDA rose by almost 43% in absolute value.

The stellar results can be attributed to JLR’s marvelous scorecard, SUV escalation, and EV Progress.

2. Jaguar Land Rover Performance Dashboard rocked the scorecard with their highest-ever volume numbers. JLR’s revenue in the December quarter rose by 22% to £7.4 billion. While Range Rover registered. EBIT margin in Q3 FY24 of 8.8%; more than double Q3 FY23. The company has three branded segments- Jaguar, Range Rover and Defender. And all the segments performed pretty well in terms of volume mix. The company saw the highest wholesales in 11 quarters. Demand for Range Rover, Range Rover Sport, and Defender remains particularly strong, representing 76% of the order book.

Not gonna lie, in spite of inflation and a heated economy, luxurious segments in companies have been seeing tremendous growth. Strong consumer demand is rocking once again.

3. SUV Escalation – This financial success comes after the strong SUV demand of TaMo. The company has been witnessing a structural shift in SUV demand. Now the segment contributes more than 50% to the revenue mix but the company said this has been at the cost of hatches and sedans. But hold on, the company plans to ramp up the supply for new launches to drive volume growth. Here comes an important concept of- Premiumisation. 

Let me explain the concept by giving you very simple statistics. between FY19 and FY23, the sales of Bata, an affordable footwear brand, grew close to 20 percent while Metro, which focuses on the premium segment, saw its sales jump by over 70 percent in the same period. As Indian consumers embrace premiumization, their quest for quality and luxury mirrors the nation’s journey toward economic brilliance. This shift, fueled by aspirations and dreams, is more than a trend; it’s a collective leap towards a future where every Indian partakes in the nation’s prosperity, powered by the choices they make and the dreams they dare to dream.

4. EV Progress – I can go on and on about the EV Industry. If you’re an avid investor you must be thinking that the Industry is overvalued now. But here are a few interesting facts that will clear your misconception.

• The Indian EV industry has grown 20x from FY20 to FY23 – with nearly 8k/month of sales volume.  The government has set an ambitious target of 30%+ penetration EV penetration by 2030, which is a further 12 -15x growth (See Chart Below)

                     Source: Tata Motors Investor Presentation

• Uneven adoption of EVs across cities – e.g… Trivandrum and Thrissur have ~5% adoption; emerging pockets of high adoption also in certain small towns (e.g. Bhilai). Recently, government subsidies (e.g., registration fee waivers) have been rationalized in some states, creating some uncertainty for customers A survey by McKinsey indicated the following. 

• EV’s penetration in India is below 1.2% which is lower than Asia’s average of 18%. To achieve COP26 goals, India needs to manufacture and sell more and more EVs. TaMo’s products like Tiago and Safari EV have garnered interest from customers and they plan to launch additional products going forward. 

Now let’s have a look at why Maruti turned out to be a hare in the Hare Vs Tortoise Race.

• While Tata has been playing strong in its EV game, Maruti is yet to launch its first Electric Vehicle.
• Tata Motors shares doubled in the last year while Maruti’s shares rose by just 22%.
• Tata Motors’ sales doubled in the last 6 years, while Maruti Suzuki’s rose by just 25%

As we applaud Tata Motors for overtaking Maruti Suzuki as India’s most valued car company, it’s clear that Indian firms have what it takes to shine on the global stage. The government is doing its part by inviting global players like Tesla and BYD to India. Still, Tata Motors’ success story is proof that our own companies are strong competitors globally. This achievement is more than just numbers; it’s a source of national pride, showing the strength and potential of Indian enterprise. Let’s stand behind our local heroes, as their victories are not just theirs, but a win for all of India. Together, we’re not just competing; we’re setting new benchmarks for the world to follow.

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Green Portfolio is a SEBI Registered (SEBI Registration No. INH100008513) Research Analyst Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use.