Financial Analysis and Management Decision Making

Tata Jaguar Case Study

Submitted to: Ms. Roopa Submitted by: Group 3: Chirag Maru Clareena Serrao Pragati Naik Subha Raju A.R.Sidhardha

Financial Analysis and Management Decision Making

TABLE OF CONTENTS
INTRODUCTION .........................................................................Error! Bookmark not defined.

ABOUT THE CASE ......................................................................Error! Bookmark not defined.

SOURCES OF FUNDS .................................................................Error! Bookmark not defined.

CONCLUSION ..............................................................................Error! Bookmark not defined.

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Financial Analysis and Management Decision Making

INTRODUCTION
Tata Motors Ltd is Indias largest automobile company which has consolidated revenues of Rs. 70,938.85 Crores in 2008-2009. It was established in the year 1945 and more than 4 million vehicles work on Indian roads after the first vehicle came out in 1954. It is also the first Indian engineering Sector Company to be listed in the NYSE (New York Stock Exchange) in 2004. The companys manufacturing foundations in India are in Jamshedpur, Pune, Lucknow, Pantnagar and Dharwad. With subsidiaries and associate companies it has operations in UK, South Korea, Thailand and Spain. Tata Motors is the leading company in commercial vehicles. It is the worlds fourth largest truck manufacturer and second largest in bus manufacturing. Indias first mini truck Tata Ace was launched in 2005 which created a new segment. The first peoples car Tata Nano was unveiled in 2008 and the first car was released in April 2009. Jaguar Cars Ltd. is a British luxury car manufacturer which is now wholly owned subsidiary of Tata Motors Ltd. Its headquarters is in Coventry, England. Since March 2008 it is operated as a part of Jaguar Land Rover Business. Jaguar was founded by Sir William Lyons in the year 1922 used to make motorcycle sidecars before switching into passenger cars segment. It was sold to Tata on 2nd June, 2008 at a cost of 1.7 billion. Land Rover is SUV and all-terrain vehicle manufacturer which is based in Solihull, West Midlands, England. On 11th June, 2007 Ford Motor Company announced to sell Land Rover along with Jaguar and finally sold on March 2008.

ABOUT THE CASE

As seen from the above introduction concerning Tata motors, it is the largest automobile manufacturer in India. Tata motors moved ahead with the upbringing of a decision in June 2007, to express their desire to acquire the premium European brand of cars namely Jaguar and Land Rover which are primarily owned by Ford Motor Company. It was considered that if this particular deal was successfully completed they would be one of the Indias largest overseas conquest bids in the automobile sector of business. This deal was estimated to be around US$ 1.5 billion. Also they came up with the decision to finance this deal along with Fiat S.p.A otherwise they would introduce tie ups with some equity partners.

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Financial Analysis and Management Decision Making

The business of Tata Motors Company and their cash holdings were analyzed. From their reports it was seen that Tata Motors does have enough cash to proceed with the present acquisition and that they themselves are capable of carrying out the process. Looking at their financial statements they have cash pile of nearly Rs 60 billion and also additional free cash of Rs 10 billion for the financial year ended march 31, 2007. The international brands such as Jaguar, Land Rover, Aston Martin and Volvo brands which majorly occupy the luxury segment were acquired by Ford Motors in 1990s.the decision that Ford took to sell these luxury brands was particularly their innovative step i.e. the restructuring activity that they engaged themselves in came up in January 2006. This deal was said to be placed in the right direction as Ford was fully receiving losses of about 12.7 US$ in December, 2006. It was predicted by some analysts that ford could sell jaguar and land rover as these did have adequate amount of contribution to the companys losses. It was also seen that they had a big failure in re-branding these luxury cars along with their product portfolio. Moreover this approach of Tatas group was an uptrend towards globalization. They wanted to set their foot in the European markets in order to increase their market share and capture a larger portion of it. There were also other companies like auto major, Mahindra & Mahindra as well as other private equity firms such as Celebrus and Ripplewood Holdings, competing with Tata Motors for the forward acquisition. In the following year it was seen that Tata had announced the completion of the acquisition of the British luxury cars namely jaguar and land rover for US$ 2.3 billion from the US based Ford motor company. This turned out as an added advantage to Tata because they could make an entry into the high end premier segment of the global international automobile markets. Some issues that would stand in front of them were currency risks, funding risks and majorly the slowdown in the European and the American markets on the whole.

SOURCES OF FUNDS
For starting a company the primary need is to raise funds. Funds are required for various reasons like requirement of machinery or for construction of a new building. So, it is capital that contributes for the procurement of resources. Funds can be developed internally, but for

machinery it can be from external sources. Company can raise funds from Capital Markets, Loan Group 3 Page 4

Financial Analysis and Management Decision Making

Stock, Retained Earnings and Bank Borrowing, Venture Capital, Franchising and government sources. Further it can be understood by reading the balance sheet of Tata Motors: The analysis of the balance sheet shows that the company has funds pumped from various areas like share capital, reserves, equity share warrants, equity application money. All these come under share holder funds. The rest of the funds are available in the form of secured and unsecured loans. The financial leverage of the company can be understood by calculating the debt-equity ratio. The formula for debt equity ratio is:

Calculated value for the year 2009 is 1.07 and for the year 2008 is 0.8. This shows that, the ratio is increased from the previous year. It indicates that the company has increased its assets through debt. The reason for financing through debt is to support the new acquisition with Jaguar. Currently we can rate the company as highly leveraged company because most of the assets are financed through debt.

CONCLUSION
From the above readings and analysis of source of funds and other related matters, we can say that the company is seeking to expand themselves globally and that is the reason for this particular acquisition that they decided for. This acquisition opened up ways for Tata to further enlarge their business. Looking at an Indian company having global luxury brands is something different but making their presence as the largest automobile company is their main motive. Hence this strategic move will maximize their profitability levels.

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