January 30, 2008 1

3QFY2009 Result Update

Tata Motors

NEUTRAL

Price Rs150

Target Price -

Investment Period -

Stock Info

Sector Automobile

Market Cap (Rs cr) 7,696

Beta 1.0

52 WK High / Low 762/122

Avg Daily Volume 356311

Face Value (Rs) 10

BSE Sensex 9,424

Nifty 2,875

BSE Code 500570

NSE Code TATAMOTORS

Reuters Code TAMO.BO

Bloomberg Code TTMT@IN

Shareholding Pattern (%)

Promoters 41.8

MF/Banks/Indian FIs 18.6

FII/ NRIs/ OCBs 28.6

Indian Public 11.0

Abs. 3m 1yr 3yr

Sensex (%) 4.2 (46.9) (4.3)

Tata Motors (%) (5.0) (77.8) (77.5)

Net Sales lower than expectation and posts Net Loss: For 3QFY2009, Tata Motors (TML) reported a 34.4% yoy decline in Net Sales to Rs4,759cr, which was lower than our expectation of Rs5,043cr. This was mainly due to the 32.2% yoy decline in Volumes and around 3.5% yoy fall in net average realisation per vehicle. This decline in realisation was mainly on account of the substantial 41% de-growth recorded by the commercial vehicle (CV) segment. The company reported a Net Loss of Rs263cr for the quarter, which was also below our expectation. Net Loss for the quarter includes notional valuation loss of Rs227cr on account of revaluation of Foreign Currency Convertible (FCC) instruments impacting Bottom-line.

High Raw Material cost, lower Operating leverage impact Margins: During 3QFY2009, EBITDA Margins witnessed sharp 890bp yoy decline owing to higher Raw Material costs and lower Operating leverage. High price inventory resulted in Raw Material costs increasing substantially by 611bp during the quarter. Further, Other Expenditure increased by 143bp yoy during the quarter while Staff costs increased by 221bp yoy. TML reported a substantial 89.7% yoy decline in Operating Profits to Rs78cr (Rs759cr) during the quarter.

High Other Income restricts Adjusted Net Loss: High Other Income of

Rs100cr (Rs92cr) and low Tax provision restricted Adjusted Net Loss (excluding forex loss) during the quarter to Rs37cr (Rs472cr Net Profit in 3QFY2008). During the quarter, TML partially sold its long-term investments, which resulted in profit on sale of Investments of Rs113cr (not adj. for Tax), included in the Other Income.

Sales Volume declines 32%: TML’s Sales volume for the quarter at 97,644

vehicles declined by 32.2% over 1,43,978 vehicles in 3QFY2008. CV sales fell sharply by 40.8% to 54,731 units, while passenger vehicle (PV) sales at 42,913 units fell 16.8% yoy. Overall the CV segment declined by 43.9%. TML gained marketshare both in MHCV and LCV segments even though it lost ground in the CV segment. The company’s Export volumes registered a decline of 44.5%% in 3QFY2009 due to the global economic slowdown and credit crunch.

Key Financials – (Consolidated, Excluding J&LR) Y/E March (Rs cr) FY2007 FY2008 FY2009E FY2010E Net Sales 32,066.5 35,413.2 28,495.1 30,176.3 % chg 35.8 10.4 (19.5) 5.9 Net Profits 2,126.5 2,053.4 1,036.9 1,105.9 % chg 21.5 (3.4) (49.5) 6.7 OPM (%) 11.7 11.2 6.3 8.1 DEPS (Rs) 55.2 53.3 20.2 21.5 Adj. DEPS(Rs)* 55.2 53.3 20.2 16.7 P/E (x) 2.7 2.8 7.4 7.0 P/BV (x) 0.8 0.7 0.6 0.5 RoE (%) 29.2 26.5 7.6 7.8 RoCE (%) 19.0 14.9 3.3 4.9 EV/Sales (x) 0.4 0.4 0.5 0.5 EV/EBITDA (x) 4.3 4.0 8.9 6.6

Source: Company, Angel Research; Note: * FY2010E EPS includes US $51m loss from J&LR

Vaishali Jajoo

Tel: 022 – 4040 3800 Ext: 344 e-mail: vaishali.jajoo@angeltrade.com

Performance Highlights

Vaishali Jajoo

Tel: 022 – 4040 3800 Ext: 344 e-mail: vaishali.jajoo@angeltrade.com

Jaydeep Mavani

Tel: 022 – 4040 3800 Ext: 342 e-mail: jaydeep.mavani@angeltrade.com

January 30, 2008 2

Automobile

Tata Motors

Conference Call - Key Highlights • TML’s performance for the quarter was severely impacted by the reduction in freight

movement. For the period ending Dec’08, freight rates increased 0.5% yoy. On qoq basis, freight rates declined by 1.1% impacting profits of truck operators.

• TML’s marketshare in the domestic M&HCV segment grew by 4.3% to 69.9% during the quarter, while marketshare in Bus segment recorded a growth of 7.5% to 52.91%. Meanwhile, TML’s domestic PV volumes fell by 14.4% with domestic PV industry registered 16.5% decline in volume, resulted in positive gain in marketshare for TML at 13.2% (12.9%) mainly due to launch of new Indica Vista.

• Inventory days went up to 36 days from 35 days mainly due to the lower base. However, in absolute terms, Retail days current run rate is 31 days. TML is hopeful of improving the same in the current quarter.

• Net Debt at end of 3QFY2009 stood at Rs13,605cr (Rs11,254cr in 2QFY2009), which includes Rs7,000cr working capital loan and around Rs3,600cr short-term loan. Average cost of Rupee debt is 9%, while Dollar Debt is lower. Debtor days increased to 18 days from 17 days during 3QFY2009. Net Debt to Equity ratio on standalone basis is at 1.1 while consolidated Debt to Equity, which includes J&LR, is currently at 2.1.

• TML’s Vehicle Finance Division accounts for 34% of its total vehicle business. During the quarter, the Division grew its Book size to Rs2,500cr in TML’s books and Rs2,000cr in the Subsidiary.

• TML is hopeful of clocking better 4QFY2009 results on the back of softening Interest rates, reduced commodity costs and incentives announced by the government for the CV Sector in the last couple of months. TML has also embarked on an extensive cost reduction program targeting at an overall cost reduction of Rs1,000cr in the next three years.

• TML proposes to launch new product/variants in the CV segment: World Truck, M&HCV truck variants, Marcopolo buses, Ace 1 ton; PV segment: Nano, Xenon, Fiat 500, Linea, Punto.

• Capex Plan: TML incurred capex of Rs2,900 during 9MFY2009 and expects to end FY2009 with total capex of Rs3,500cr. TML plans to incur capex of Rs2,500-3,000cr every year here on with a focus on product development. It is concentrating on new launches and considering it as a way of de-leveraging its product portfolio. TML is building new capacities at different plants and simultaneously working on six new (CV and PV) platforms. TML is now actively reviewing its capex plans due to the weakening demand environment. It does not envisage changing its product development plans but is likely to postpone some of its capacity expansion plans.In Jan 2009,

• TML has received new order from the Delhi Transport Corporation (DTC) to supply 1,625 ultra low-floor buses, and their maintenance for 12 years. The contract is valued at Rs.2,200cr, comprising about Rs.900cr for the 1625 buses, and about Rs.1,300cr for the 12-year maintenance contract for these buses. The first such order by the DTC in 2007 for 650 such buses was won by Tata Motors, and the company fulfilled the order in batches, as per schedule, in 2008.

Jaguar-Land Rover (J&LR) Since taking over J&LR operations in June 2008, J&LR’s Sales have declined 22.2% to 1,34,685 units. As expected, Auto sales in North America and Europe are worsening progressively as each month passes. For the Oct-Dec 2008 period, JL&R’s combined sales fell by more than 35.2% to 49,186 units. However, the silver lining in the cloud was that Jaguar volumes were up to 14,710 (10,667 in 3QFY2008) even as Land Rover crashed to 34,476 (65,195 in 3QFY2008) units during 3QFY2009. We believe that volume growth would be capped in the medium term owing to significantly weakened market conditions, especially in the US and UK and the need to reduce stocks. The company accelerated measures to reduce costs and increase operational efficiency by reducing production and inventory through shift cut backs, extended breaks to employees and significant headcount reduction during the quarter. At the same time TML expects J&LR would benefit from Britain's 2.3bn pound ($3.3 bn) auto industry rescue package, but urged the British government to do more to ease the industry's sweeping and urgent liquidity problems.

January 30, 2008 3

Automobile

Tata Motors

Tata Nano Plant TML towards early October 2008 announced re-location of its car manufacturing plant of the Nano from Singur to Sanand in Gujarat due to continued disturbances and hostility at Singur. At Sanand, the integrated project to manufacture the Nano will comprise a main plant, a vendor park and an ancillary park accommodating various small and medium units. The project is planned to be developed on an area of around 1,100 acres. The plant will initially manufacture 2,50,000 cars per annum. While awaiting the Sanand plant’s completion, TML is exploring manufacturing the Nano at its existing facilities at Pune and Pantnagar, and launch the car in the next 3-4 months. Exhibit 1: 3QFY2009 Volume Performance Particulars Q3FY2009 Q3FY2008 % chg 9MFY2009 9MFY2008 % chg M&HCV 19,803 47,042 (57.9) 93,992 122,783 (23.4) LCV 34,928 45,347 (23.0) 124,099 121,281 2.3 Total Commercial Vehicles 54,731 92,389 (40.8) 218,091 244,064 (10.6) Utility Vehicles 6,271 11,767 (46.7) 28,403 33,207 (14.5) Cars 36,642 39,823 (8.0) 116,835 129,646 (9.9) Total Passenger Vehicles 42,913 51,590 (16.8) 145,238 162,853 (10.8) Total Sales 97,644 143,979 (32.2) 363,329 406,917 (10.7) Exports (Inc Above ) 7,026 12,661 (44.5) 29,066 40,263 (27.8) Source: Company, Angel Research

Exhibit 2: 3QFY2009 Performance Y/E Mar (Rs cr) 3QFY2009 3QFY2008 % chg 9MFY2009 9MFY2008 % chg Net Sales 4,758.6 7,251.8 (34.4) 18,765.9 19,903.2 (5.7) Other Income 99.5 91.7 8.5 844.4 248.7 239.6 Total Income 4,858.1 7,343.5 (33.8) 19,610.3 20,151.9 (2.7) EBITDA 77.9 759.3 (89.7) 1,165.4 2,062.2 (43.5) OPM (%) 1.6 10.5 6.2 10.4 Interest 168.4 91.8 83.5 429.0 269.8 59.0 Depreciation 201.7 167.5 20.4 585.4 474.7 23.3 PBT (419.2) 665.1 284.0 1,876.4 (84.9) Tax (155.9) 166.1 (125.9) 385.8 PAT and EOI (263.3) 499.1 409.9 1,492.6 (72.5) DEPS (Rs) (5.1) 9.7 8.0 29.0 Source: Company, Angel Research Exhibit 3: Performance of Key Subsidiaries (Rs cr)

Subsidiary Sales Net Profit 3QFY2009 3QFY2008 % chg 3QFY2009 3QFY2008 % chg

Tata Daewoo 605 936 (35) 53 67 (21) Telco Construction 401 714 (44) (41) 93 (144) Tata Technologies 333 270 23 21 7 203 Tata Motor Finance 222 222 (0.1) (32) 8 (516) HV Transmission 25 52 (53) 2 13 (84) HV Axles 27 54 (50) 2 13 (87) Source: Company, Angel Research

Outlook and Valuation

We believe FY2009 and FY2010 would be difficult years for TML due to overall economic growth slow-down. However, the recent cut in CRR and Repo rate raises a ray of hope and we believe that by end FY2009 Auto Finance rates would also trend downwards, which could help TML report better volume growth from mid FY2010 provided liquidity and other demand drivers also turn positive.

January 30, 2008 4

Automobile

Tata Motors

Angel Broking LimitedResearch Team Tel: 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com

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We await further clarity on JLR's financial details. Hence, it is difficult to value J&LR business, which is estimated to contribute more than 50% of TML's Consolidated Turnover. We would re-visit our estimates and valuations once we get further clarity on the J&LR deal and its Assets and Liabilities. Meanwhile, J&LR's key European and US markets have deteriorated materially in recent months and are expected to remain weak for at least the next 12 months. We are concerned about the magnitude of the impact of the slowdown in the US and European (dominant markets for J&LR) markets on J&LR's Profitability. Refinancing the $3bn bridge loan taken by TML for the J&LR funding is another area of concern. Given the current market conditions, we believe TML would find it difficult to go ahead with its foreign offering of Equity as part of its divestment plan. In wake of the multiple uncertainties and overhang in the domestic and global markets, we expect the TML stock to continue to underperform in the medium term. Worsening state of the industry is likely to persist through FY2009, and pressure on the company's Earnings and Cash flow will continue till FY2010E. TML's Indian business has been affected, particularly in the last two months, as availability of financing for vehicle purchases has declined rapidly. After considering the risks impacting the consolidated entity (post J&LR) and further deterioration in the scenario to raise finance, we prune our FY2009E consolidated Earnings estimates by 22.9%. We are pruning our Consolidated Earnings (excluding J&LR) estimates for FY2010E by 19.5%. At Rs150, TML is trading at 7x FY2010E consolidated EPS and 9x FY2010E consolidated Adj. EPS of Rs16.7 (including J&LR), which is fully priced in. On account of the domestic and global Auto outlook having deteriorated significantly and not showing any immediate recovery, we remain Neutral on TML. We believe the stock will start performing when there is reasonable confidence that 2HFY2010 will see better volume growth in the CV sector due to softening interest rates and improvement in the macro-economic factors.

TM