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"Tata Motors: Can the Turnaround Plan improve Performance?"

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Table of Contents
Executive Summary.....................................................................................................................................3
Background..................................................................................................................................................3
General Financial Statements Analysis........................................................................................................6
Horizontal and Vertical Analysis for TATA Motors....................................................................................6
Horizontal Analysis..............................................................................................................................6
Vertical Analysis...................................................................................................................................7
Horizontal and vertical analysis results interpretation.........................................................................8
Financial Ratio Analysis................................................................................................................................9
Business Analysis and Recommendations.................................................................................................12
Tata SWOT Analysis................................................................................................................................12
Internal Strategic Factors...................................................................................................................12
External Strategic Factors..................................................................................................................12
Strategies Recommendation......................................................................................................................13
Conclusion.................................................................................................................................................14
References.................................................................................................................................................15
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Executive Summary

Tata Motors Limited is one of India's largest multinational automakers with sales of $ 42

billion. The company is a leader in manufacturing and selling commercial vehicles such as sports

cars, trucks, defence vehicles and passenger cars. "Tata Motors: Can the Turnaround Plan

Improve Performance?" report describes Tata motors financial and non-financial performance.

The report details how Tata Motors can work well and see a strong from the backlashes

experienced while dealing with economic solid and sectoral headwinds. The background covers a

brief history of the company and the products and services offered. General financial statement

analysis will focus on vertical and horizontal analysis from 2014 to 2018 (Singh & Ramanna,

2010).

An integrated approach that showcases initiatives undertaken across financial analysis

will be applied in the report. A detailed financial ratio computation and analysis from the

company's statements will be conducted to identify the efficiency, profitability and liquidity

position and trends for five (5) years. A brief explanation of the factors behind the financial

trends and consequences will be explained. The report will outline the strengths, weaknesses,

opportunities and threats that can influence the turnaround plan. The SWOT analysis will offer

guidelines on strategies the company can adopt to ensure success. The report will offer strategic

recommendations necessary to ensure Tata motors regain its leading position globally in the

automobile industry.

Background

Tata Motors is an Indian automotive manufacturer founded in 1945 as Tata Engineering

and Locomotive Company Limited (TELCO) by JRD. Tata. The company headquarters are
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located in Mumbai, Maharashtra, India. Tata Motors had a market capitalization value of 1.109

billion Indian Rupees at the end of 2018 (Singh & Ramanna, 2010). The company has over 76

subsidiaries in the United Kingdom, Thailand, South Korea, South Africa, and Indonesia. Some

of its most known subsidiaries are Jaguar Land Rover in the UK and Tata Daewoo in South

Korea. The company was formed as a partnership with Daimler -Benz of Germany. The company

employs over 81090 employees worldwide, working in either Tata motors or its subsidiaries. It

started as a commercial vehicle manufacturer and dominated the Indian market, leading to Tata

Mobile's 1988 passenger car launch. Tata Sierra was the first multi-utility passenger vehicle the

company manufactured. Later, the company launched Tata estate 1992, Tata Sumo 1994 and tata

safari 1998. 1n the year 1998, Tata Motors launched the Indica, the first fully indigenous Indian

passenger vehicle (Richmond, 2011). The Indica has excellent fuel economy and a powerful

engine. Although auto analysts heavily criticized the car, aggressive marketing by the company

made it the best-selling vehicle in the history of the Indian automotive industry.

Tata Motors Group is a leading automotive manufacturing company offering a diverse

range of vehicles. The company offers integrated, innovative, and e- mobility solutions. Tata

motors primarily focus on developing, designing, manufacturing, selling vehicles, information

technology, and machine automation segment. The company specializes in commercial and

passenger vehicles with a range of cars, trucks, buses and defence vehicles. Tata motors

manufacture ten car models; two (2) SUV cars, three (3) hatchbacks, 2 Compact Sedan, three

compact SUV. Hatchbacks, sedans and sport utility forms part of passenger cars, whereas small

commercial pickups, intermediate, light, medium and heavy and cargo forms the commercial

vehicle segment of the company (Richmond, 2011). The company is planning to launch also

Tiago EV and Altroz EV. Apart from the range of vehicles, the company also offers a doorstep
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service (DSS) van. The van is a mobile workshop with tools and equipment for scheduled

vehicle services and repairs. In 2018 the company was estimated to be worth US$100 billion

with over 1.2 million passenger and commercial vehicles globally and an estimated gross

revenue of 2954 billion rupees. Although Tata motors have been a leading automotive company

in India, it has faced several issues.

Tata Motors has faced stiff competition from other automobile producing companies such

as Nissan Motor Company, Toyota motor corporation, Volkswagen. In 2018, Tata motors

controlled almost 46.8% of the commercial vehicle market. On the passenger vehicle segment,

the company has been facing competition from Maruti Suzuki India Limited, Hyundai motor

company, and Mahindra & Mahindra Limited (Singh & Ramanna, 2010). By 2018, tata motors

had lost about 50% of the commercial market share to its competitors. The loss of market share

has seen the company revenues fall drastically.

Apart from the increased competition and loss of market share, the company has reported

that Guenter Butschek, who was appointed to be Tata Motors CEO in 2016, had to deal with

several issues. He needed to deal with the challenges of the market gap, elevate customer

satisfaction, delays in product launches and move Tata motors from its conventional

manufacturing to modular platforms. To deal with the recent losses in the company, the CEO was

faced with the issue of high operations costs and gaining economies of scale.

The report will have an executive summary, introduction briefing the history of Tata

motors, products and services offered by the company and recent issues facing the company.

Additionally, the report will include a general financial statement, financial ratio, and business

analysis and recommendations.

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General Financial Statements Analysis

Horizontal and Vertical Analysis for TATA Motors

Horizontal Analysis

Horizontal analysis (also known as trend analysis) is a balance sheet analysis method that

shows changes in the corresponding balance sheet items over time. It is a handy tool for

assessing trend conditions. Statements with two or more periods are used in horizontal analysis.

The earliest period is usually used as the base period (Antayed & Tayeh, 2017). The items on

the statement for all subsequent periods are compared to the items on the financial statement for

the base period. Changes usually appear in both dollars and per cent. The percentage changes are

calculated by using the following formula:

Percentage (%) change = (Dollar change / Amount of items in base year) * 100.

Table 1. Tata Motors data

Tata Motors Data

2013 2014 2015 2016 2017 2018
Total assets 1,703,782 2,199,437 2,381,437 2,671,412 2,737,544 3,313,505
Long term liabilities 321,553 452,586 546,071 505,104 606,292 611,995
Other liabilities 865,457 923,561 993,936 1,070,494 1,156,295 1,432,195
Operating profits/Income 168,252 211,607 257,048 208,176 168,492 125,985
net income 98,924 139,909 180,299 115,791 74,544 89,887
(Shernaz, & Ruzbeh, 2020)
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Table 2. Horizontal analysis for Tata Motors for 2014 to 2018 with 2013 as the base year

Horizontal analysis in %
2014 2015 2016 2017 2018
Total assets 29.01 39.77 56.79 60.67 94.48
Long term liabilities 40.75 69.82 57.08 88.55 90.32
Other liabilities 6.71 14.85 23.69 33.61 65.48
Operating
profits/Income 25.77 52.78 23.73 0.14 -25.12
net income 41.43 82.26 17.05 -24.65 -9.14
(Shernaz, & Ruzbeh, 2020)

From the analysis, total assets for Tata Motors have drastically increased for the five

years period (2014-2018), which makes the company stronger on the assets side. Although long-

term liabilities have been increasing at a lower rate, a surge increase in the other liabilities

indicates high operations costs. Operating profits and net income for the company was

increasing, reaching their peak in 2015. From 2016 to 2018, the company experienced a dip in

net income and operating profits that saw losses in 2017 and 2018.

Vertical Analysis

Vertical analysis (also known as common-size analysis) is a standard method of financial

statement analysis. Each item in the financial statement is a percentage % of the underlying

assets in the statement (Antayed & Tayeh, 2017). In vertical analysis, total assets, total liabilities

and equity are used as base figures. All individual assets (or groups of assets in a summary of the

balance sheet are used) are reported as a percentage of total assets. Current liabilities, fixed

liabilities, and stocks are reported as a percentage of the total liabilities and equity. The following

formula is applied in the vertical analysis.

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Amount of individual item

Percentage change = ∗100
Amount of base item

The base item is a total liability and capital in case of liability, and for the assets side,

total assets

Vertical analysis Data vertical analysis in %

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Non-Current assets 1,240,984 1,385,868 1,572,175 1,576,346 1,953,777 56.42 58.19 58.85 57.58 58.96
Current assets 958,453 995,569 1,099,237 1,161,198 1,359,728 43.58 41.81 41.15 42.42 41.04
Total assets 2,199,437 2,381,437 2,671,412 2,737,544 3,313,505 100 100 100 100 100
Long term liabilities 452,586 546,071 505,104 606,292 611,995 20.57 22.93 18.91 22.15 18.47
Other liabilities 923,561 993,936 1,070,494 1,156,295 1,432,195 41.98 41.74 40.07 42.24 43.22
Total liabilities and
Equity 2,199,984 2,381,437 2,671,411 2,737,544 3,313,505 100 100 100 100 100
Table 3. Vertical analysis data and Results

(Shernaz, & Ruzbeh, 2020)

The vertical analysis of Tata motors does not deviate from the results obtained from the

horizontal analysis. The long-term liabilities have slightly increased over time, but other

liabilities increased exponentially.

Horizontal and Vertical Analysis Results Interpretation

The results obtained from the above analysis, indicating an increase in assets and

liabilities and a fall in net income and operating profits of Tata Motors, can be explained by

several factors. For expansion, the company must borrow to meet the costs of establishing new

premises, increasing long term liabilities (MD Qamar Azam & MD Abrar Alam, 2020). The rise

in other liabilities can be explained by increased operating costs associated with expansion, such

as increased wages and utility bills. Increased investment by shareholders can also explain

increased assets and the new machinery and other equipment acquired to facilitate expansion.
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Over time the dip in profits is a severe concern for the company and can be explained by

the decreasing net sales. The decrease in sales has been brought by a fall in demand for Jaguar

Land Rovers (JRL) cars in China and other regions and weak Indian operations.

Although expansion offers increases the competitiveness of Tata Motors, the increased

liabilities and dip in operating profits and net income will have severe consequences to the

company. The decline in net income will affect the ability of Tata motors to meet its debt

obligations and cater for other costs, thus lowering the company creditworthiness. The credit

score for the company will be lowered by credit reporting bureaus, thus affecting future

borrowings. The low net incomes and operating profits indicate the inefficiency of the company.

Tata will be forced to adjust operation costs by closing some branches or laying off employees

affecting its operations and competitiveness.

Increased liabilities indicate that the company is financing its operations through

borrowing; hence a large portion of the revenues will be utilized on interest payment. The

company will be left with insufficient funds to reinvest to facilitate growth and expansion.

Inefficiency will send the wrong signal to shareholders and investors on the liquidity position of

Tata motors, thus lowering its Shares value (Abbott, 2021).

On the contrary, the increase in assets improves the operations of the company. Effective

and efficient utilization of the assets will help the company meet customer demands on time

hence achieving customer satisfaction. With an increased customer base, the company can

improve low net sales due to an expanded market.

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Financial Ratio Analysis

Several financial ratios are computed and analyzed to understand Tata motors efficiency,

profitability and liquidity position. Financial ratio analysis involves studying the ratio of various

items in company financial statements (Vandyck, 2006).

1. Liquidity ratio (LR) - The ratio measure ability of a firm to meet its short-run obligations

Current Assets
LR =
Current Liabilities

2. Leverage ratios – show the risk of using debt capital to finance operations. Two vital

leverage ratios are used in analyzing debt capital.

total debts
a) Debt equity ratio = ' . Shows the relative contributions of
Shareholde r s Fund

owners and creditors.

EBIT (Earnings before interest ∧tax)

b) Interest coverage ratio = . The ratio is used
INTEREST CHARGES

to determine how easily the company can pay outstanding debts. It is a debt ratio as

well as a profitability ratio.

Net Sales
3. Inventory turnover ratio or Stock turnover = . Shows how fast
Average Inventories

inventories are converted to sales and indicate efficiency.

4. Profit margins ratios- indicate the firm's ability to generate revenues relative to sales,

assets and equity investments. There are two types of profit margins ratios

Gross profit
i) Gross profit margin ratio = Indicates the amount of sales
Net sales

revenue left after meeting manufacturing costs.

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Net profits after tax

ii) Net profit margins = . Measures overall efficiency of
Net sales

production

Average
5. Fixed assets Turnover (FAT) = Net sales The ratio measures operating
assets ¿
¿

performance by showing the ability of a company to generate revenues from fixed assets

investments.

Table 4. Computed Financial ratios for Tata Motors

Financial Ratios of TATA Motors

Year 2014 2015 2016 2017 2018
Liquidity Ratio (Current
Ratio) 1.0378 1.0016 1.0269 1.0042 0.9494
Leverage Ratios
Debt equity ratio 2.3535 3.3085 2.3836 3.7149 2.4723
Interest coverage ratio 12.9289 -30.0993 3.5147 2.4848 27.2872

13.30729
Inventory turnover ratio 8.1819195 8.3238916 8.0067997 6.8479389 5
profit margins ratios
Gross margin ratio 0.4247 0.4358 0.4474 0.4195 0.4100
Net profit margin 0.0606 0.0688 0.0400 0.0221 0.0231

Fixed assets turnover 1.7727 1.7793 1.7638 1.5551 3.0240

(Shernaz, & Ruzbeh, 2020)

Tata motors have a high Liquidity ratio (Current ratio), indicating that the

company has a high ability to meet its debt requirements in the short term. The debt-

equity ratio is high, and creditors will start feeling insecure about debt payment by tata

motors. The company also have a high-interest coverage ratio, and a large portion of

earnings is used to pay interest rates (SEKHAR, 2020). The company is experiencing a

decreasing profit margin that has resulted from increased operating costs. The low-profit

margins imply little is dedicated to paying dividends to shareholders.

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The high inventory turnover ratio indicates the inefficiency of Tata motors, which

may lead to stock-outs hence losing sales. The inventory inefficiency results from high

unmet demands and the inability of the firm to manage the resources effectively. The low

fixed asset turnover ratio indicates that the company is not appropriately managing the

fixed assets (Vandyck, 2006).

Unplanned expansion and loss of market to competitors can be attributed to the

changes witnessed in the profitability, efficiency and debt financial ratios. Tata motors

over-relied on the rise of disposable income and anticipated launches to support its

financial positions. The delay in the launches has a significant impact on profitability.

Additionally, the setting out of new emission standards (Bharat Stage VI (BS-VI) by the

Indian government has affected efficiency and profitability (SEKHAR, 2020). The

decline in the trading stock value of Tata motors also explains the fall in profit margins

due to low investments.

Business Analysis and Recommendations

Tata Motors SWOT Analysis

Internal Strategic Factors

Strengths

Being a leading global company in automobiles, Tata has several strengths it can bank on

to ensure it turnaround the loss of market experienced recently. The company, through its

subsidiaries, have vast knowledge and experience in penetrating new markets (Henry, 2021). The

company will increase its sales through diversification. Over the years, the company has

established an extensive distribution network that it can use for expansion. A highly skilled
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workforce and reliable suppliers offer an excellent avenue the company can use for its success.

The already established brand portfolio globally can be employed by tata management for

turning around its financial problems.

Weaknesses

Inadequate and inappropriate financial planning poses a threat to the company. High

current asset ratios and interest coverage ratios indicate loopholes in the efficient use of available

funds. Its inventory turnover ratio portrays its inability in product forecasting that affects its sales

and revenues (Henry, 2021).

External Strategic Factors

Opportunities

The new trends in consumer behaviours present enough market to exploit to increase its

market share and revenues. Most people, especially in developing countries, are shifting from

passenger to commercial cars and increasing demand (Projects for MBA, 2020). The company

can utilize Economic uptick and increased spending to expand its market and dilute its

competitors.

Threats

Technological advancements in the automobile industry pose a threat to tata motors. Its

competitors, such as Tesla, have already introduced electronic cars, thus disrupting the Tata

market. If the company fails to react swiftly, it will find it challenging to turn around its current

situation. Tata motors operations in almost every country expose the company to currency
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fluctuations (Projects for MBA, 2020). Liability laws are different worldwide, and the company

might suffer losses in the market if liability laws and policies are changed.

Strategies Recommendation

The Automobiles industry has experienced disruptions resulting in losses. Tata motors

need to reimagine its operations to reclaim its leading position in the industry. The company need

to optimize its asset deployment, build a resilient supply chain, focus on recurrent revenue

streams and adopt zero-based budgeting (O'Kane & Cunningham, 2014). Due to reduced stock-

outs, the optimal utilization of assets will increase company productivity, sales, revenues and

customer satisfaction. A well-developed supply chain will ensure the company regain lost

customer loyalty hence expanding the market.

Tata Motors can ensure recurrent markets by maintaining and developing already

established markets rather than establishing new markets. The company will specialize and

understand market gaps, thus utilizing its resources efficiently to improve products and increase

returns. Zero-based budgeting will reduce wastage by ensuring expenditure at each period is

justified and accounted for. Intense competition in the industry poses a threat to the company

response to market changes (Bibeault, 2017). The increased competition has resulted in

downward pressure on profitability and sales in the automobile industry. Global high wage

demand by the employees is another strategic external factor that will block the turnaround

strategies success. The high cost of living and labour laws demand high wages to compensate

workers, and it will be a threat to tata motors which should cut operations costs to ensure it gets

back to profitability.

Conclusion
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Tata Motors, a leading global automobile company headquartered in India, has been hit

by reduced profitability, inefficiency and loss of market. The company overreliance on debt

capital to finance its operations and market loss have contributed to its problems. Tata Motors

board of directors need to respond quickly to the problems to ensure optimal utilization of assets,

develop its supply chain, shift from debt financing to recurrent revenues focus and embrace zero-

based budgeting to regain the lost standards of the company.

References

Abbott, A. (2021). General financial analysis: Methodology for analyzing the financial

statements of a group of companies. Independently Published.

Antayed, A. R., & Tayeh, I. I. (2017). Evaluating the financial performance of organizations

using vertical and horizontal analysis. Iraqi Administrative Sciences Journal, 1(2), 511-

528. doi:10.33013/iqasj.v1n2y2017.pp511-528

Bibeault, D. (2017). Turnaround strategies. Turnaround Management and Bankruptcy, 147-168.

doi:10.4324/9781315738116-8

Henry, A. (2021). Understanding strategic management. Oxford University Press.

MD Qamar Azam, & MD Abrar Alam. (2020). Financial ratios and analysis of Tata

motors. EPRA International Journal of Economic and Business Review, 17-31.

doi:10.36713/epra5462

O'Kane, C., & Cunningham, J. (2014). Turnaround leadership core tensions during the company

turnaround process. European Management Journal, 32(6), 963-980.

doi:10.1016/j.emj.2014.04.004
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Projects for MBA. (2020, June 29). SWOT analysis of Tata motors – Tata motors SWOT

analysis. Retrieved from https://www.projects4mba.com/swot-analysis-of-tata-

motors/2056/

Richmond, J. (2011). A Tata motors perspective for sustainable transportation and the

development of the Tata vista EV. Innovations in Fuel Economy and Sustainable Road

Transport, 47-60. doi:10.1533/9780857095879.1.47

SEKHAR, C. (2020). Financial ratio analysis: 45 ratios with theory & interpretation of

financial statements can useful for students, job interviews, investors, fund managers ...

Chandra Sekhar.

Singh, K., & Ramanna, V. (2010). Tata motors dual capitalization. SSRN Electronic Journal.

doi:10.2139/ssrn.1688837

Vandyck, C. K. (2006). Financial ratio analysis: A handy guidebook. Trafford on Demand Pub.

Shernaz, B. & Ruzbeh, B. (2020). Tata Motors: Can the Turnaround Plan Improve Performance.

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