Tata Jlr

The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital.

COMPANY PROFILE TATA MOTORS:- Tata Motors Limited, formerly known as TELCO (TATA Engineering and Locomotive Company), is a multinational corporation headquartered in Mumbai, India. It is India's largest passenger automobile and commercial vehicle manufacturing company. Part of the Tata Group, and one of the world's largest manufacturers of commercial vehicles. Tata Motors was established in 1945, when the company began manufacturing locomotives. The company manufactured its first commercial vehicle in 1954 in a collaboration with Daimler-Benz AG, which ended in 1969.

It is the 5th largest medium and heavy commercial vehicle manufacturer in the world. listed in BSE, NSE & NYSE. SubsidiariesJAGUAR CARS LAND ROVER TATA DAEWOO COMMERCIAL

JAGUAR:A statement of ultra luxury, Holds Royal warrants, Rarely advertised, Ford’s formula one entry since 1990s .Founded in 1922 by Sir William Lyons, headquartered at Coventry ,ENGLAND. it became a part of FORD MOTORS in1990 when Ford acquired Jaguar for $2.5 billion

LAND ROVER:Founded in 1948 as a marque of the Rover Company. Land Rover is an all-terrain vehicle and Multi Purpose Vehicle(MPV) manufacturer, based in Solihull, West Midlands. In 1994 Rover Group is taken over by BMW & sold to FORD MOTORS for 2.75 bn$ in 2000. It is Known for superior off-road performance, Used by military for projects and expeditions,

12/06/2007- Announcement from Ford that it plans to sell Land Rover and Jaguar. August 2007 - Major bidders are identified Likely buyers: Tata Motors, M&M, Ceribrus capital Management, TPG Capital, Apollo Management India’s Tata Motors and M&M arrive as top bidders ($ 2.05b & $ 1.9b) 03/01/2008 – Ford announces Tatas as the preferred bidders 26/03/2008 - Ford agreed to sell their Jaguar Land Rover operations to Tata Motors. 02/06/2008 – The acquisition is complete

Reports said losses at Jaguar stood at USD 715 million in 2006. Jaguar has been a dog i.e. it has not been able to provide any profit for ford because of the high manufacturing costs provided in the United Kingdom. The strong boy Land Rover's profit, on the other hand, was driven by the record sale of 2.26 lakh vehicles, an 18% YoY growth in 2007.. Bringing down production costs and turning around the company successfully will be the challenge,” analysts said. It was a test that Ford failed. Ford is combining both the brands since the products and manufacturing of vehicles for

Long term strategic commitment to automotive sector. Opportunity to participate in two fast growing auto segments. Increased business diversity across markets and products. Land rover provides a natural fit for TML’s SUV segment. Jaguar offers a range of “performance/luxury” vehicles to broaden the brand portfolio. Benefits from component sourcing, design services and low cost engineering

100% stake in Jaguar & land Rover Business

TAMO has acquired the business & initially they will be operated independently of the partner.

3 Plants in UK

These are well invested plants

2 advanced design & engineering 26 National sales center company

4-5000 engineers engaged in testing ,prototype design & powertrain Engineering , development & integration Both existing national sales companies of jaguar/land rover & also those that are carved out of current Ford operation This covers all key technologies to be transferred to JLR & perpetual royalty free license on technologies shared with Ford A minimum guaranteed amount of $1.1 bn which will help managing in Tax going forward

Intellectual property rights Capital Allowance

Support from Ford Motor Credit will continue to support the sales of JLR Ford Motor Credit for around next 12 months Pension Contributed by

Ford will contribute $ 600 mn of the Pension Fund

LAND ROVER

JAGUAR

JAGUAR+LAND ROVER

In £

2005

2006

2005

2006

2005

2006

Material cost /car

20,254

21,243

16,299

16,928

18,919

19,976

Employee cost/car

2,565

2,444

4,316

4,706

3,156

3,108

£/$

1.82

1.84

1.82

1.84

1.82

1.84

Material cost

84.5%

85.4%

112.8%

91.7%

91.7%

90.3%

Employees

9.6%

8.9%

24.3%

13.4%

13.4%

12.4%

% of sales

Investors concerns on manpower costs misplaced It is more important to manage the material & sourcing costs to improve margins Material Cost is 4-6x the wage cost for high-end products such as Land Rover Cost synergies – Tata Group has multiple levers TATA group has a rich ecosystem of JVs with leading players in Auto ancillary space TCS, Corus and Tata Technologies have varied

(Nos)

2005

2006

2007

Jaguar

86,651

72,680

57,578

Western Europe America

46,789

41,367

33,024

57%

32,131

22,136

16,836

29%

Rest of Word

7,731

9,177

7,718

13%

Land Rover

170,156

174,940

202,609

Western Europe America

97,303

95,399

109,785

54%

51,634

53,638

57,092

28%

Rest of world

21,219

25,903

35,732

18%

Total

256,807

247,620

260,187

Western Europe America

144,092

136,766

142,809

55%

83,765

75,774

73,928

28%

Rest of word

28,950

35,080

43,450

17%

Revenue synergies limited in the medium term (2-3 years) In the long-run Tata Group and Tata Motors’ footprint in South-East Asia should help Jaguar/Land Rover diversify their geographic dependence from US (30% of volumes) and Western Europe (55% of volumes)

Total acquisition cost at $3bn assumed to be debtfunded on TAMO’s books We have not considered any asset sales in our calculations Financial Impact: Leverage increases but coverage ratios reasonable Headline Debt/Equity of TAMO would increase to 2.5x from 1x Excluding the vehicle finance biz, leverage would go to 1.2x EBITDA/Interest remains at 5.0 Valuation: TAMO is trading inline/modest discount to global peers EV/Sales (1-yr forward) of 0.5x against 0.4x for global

Financial Stability ratios

CY2007/FY08E TAMO ($m) 2,664

Consolida ted ($mn) 5,664

Net Debt - excluding vehicle finance biz

(271)

2,729

Net Debt/Equity

1.15

2.45

Net Debt/EBITDA

2.23

2.66

EBITDA/Interest

8.56

5.24

Net Debt

This debt includes $3bn raised for acquisition TAMO auto biz is currently minimally leveraged -if we net off the vehicle financing receivables against its Net Debt. On a consolidated basis, the TAMO’s leverage looks adverse – however coverage ratios are still reasonable

TAMO + JLR: Leverage and Valuation ratios Proforma Valuations (TAMO +JLR) Share price

630

O/S shares

385

Mkt cap ($m)

6,070

Net Debt ($m)

5,664

EV ($m)

11,735

EV ($m)

0.48

EV/EBITDA (1-yr forward)

5.5

P/E (1-yr forward)

6.65

This debt includes $3bn raised for acqusisition

The current valuations are inline or discount to global peers

Proforma P&L ($ m) $m

CY2008/FY09E

Sales

10,2 10

TA MO

JLR

14,2 14

S P V

CY2009/FY10E Cons o

TAMO

JLR

24,4 24

12,001

14,2 14

Cost synergies

S P V

Cons o 26,21 5

71.1

EBITDA

1,19 6

935

2,13 1

1,494

1,00 6

2,500

EBITDA margin

11 .7%

6 .6%

8.7%

12.4%

7.1%

9.5%

Depreciatio n

140

699

917

259

699

958

Interest

105

42

182

149

42

191

Other income

105

105

113

113

We have assumed a 50bps improvement in JLR’s operating margins in CY2009 We have assumed the entire bridge loan to be converted to long-term debt of $3bn as a stress case scenario and taken the appropriate

Proforma P&L ($ m) Pre Tax Profit

CY2008/FY09E

CY2009/FY10E

944

1,19 8

194

Interest cost of acquisition Proforma Pretax Profit

944

Impact on TAMO FY09E PB

-3%

194

1,13 8 225

225

(225 )

913

1,19 8 3%

265

265

FORD has indicated that JLR is profitable at PBT level 225

225

(225 )

1,239

We have assumed the entire bridge loan to be converted to long-term debt of $3bn as a stress case scenario and The impact of TAMO’s taken proforma PBT could be the appropriate interest between 5-10% cost

($ m) Net Tangible assets Net Intangible Assets Vehicle Financing receivables

TAMO ($ m) 2,510

JLR ($ m) 2,246

conso

111

2,010

2,121

2,935

Net Current Assets

(56)

Cash & eqv

4,756

2,935

(107)

537

We have assumed TAMO will put $700m as operating cash in JLR on consolidation in JLR. Hence the NCA of TAMO & JLR do not add up

638

638

Trade Investments Pension Assets

233

233

The cash equivalents includes shares of Tata Steel worth $400m held at cost of $50m

Other Assets

Total Assets

696

696

3

297

300

6,373

5,142

12,21 5

($ m) Warranty Liabilities & Other provisions Pension Liabilities Def Tax Liability Shareholders' equity

TAMO ($ m) 489

JLR ($ m) 2,667

conso

19

19

238 2,314

238 2,456

Capital Asset Minority Interest Debt Total Liabilities

3,156

2,314 156

30

30

3,302 6,373

Since the acquisition cost ($2.3bn) is less than Net asset value of JLR, there is capital asset instead of goodwill

6,302 5,142

12,215

We have assumed $3bn acquisition debt of which $2.3b is used for paying Ford and the balance as operating cash in JLR

Proforma Cashflow ($ m)

T AMO

JLR

SPV

Conso

Cash Profit

949

893

(225)

1,617

Chg in operating Working Capital

238

(256 )

Cashflow from operating activities

1,18 7

637

Increase in Vehicle loan receivables

(776)

Capex

(813)

Trade investments Chg in associates

(38)

Cashflow from Investing activities

(834)

(18)

(225)

1,599

(776)

(635 )

16

(1,447) (38) 16

(635 )

(1,469)

TAMO has a robust working capital management in its auto biz. Inventory and receivable days at around 30 & 9 respectively and creditors at around 40 days The vehicle loan receivables skew the reported working capital picture as they are shown as part of working capital under Indian GAAP We estimate operating cashflow from auto biz largely covers TAMO’s auto capex . Currently it would be free cashflow neutral to modest +ve.

Proforma Cashflow ($ m) Chg in minorities

TAMO

JLR

SPV

Chg in debt

949

Dividend

(154)

Cashflow from financing activities

766

3000

Chg in cash

343

3

2,775

3,120

Operating Cashflow Capex

337

3

(225)

115

(30)

Conso

(30)

3000

3949

(154)

3766

We estimate that JLR has a +ve pretax cashflow

Sale of Tata Steel Shares TAMO holds $400m worth of Tata Steel shares (4.3% of outstanding shares) Tata group holds 33.7% in Tata Steel leaving room for some reduction in group stake Stake sale / IPO of Telcon, HV Axles, HV Transmissions We value Telcon at around $1bn (13xFY09E EPS); TAMO holds 60% stake in it HV Axles and HV Transmissions are 100% owned by TAMO (est value $200-250m) Sale of Vehicle Finance business (Tata Motor Financial Services Ltd) Since 3QFY07, TAMO’s incremental vehicle finance biz is housed in this subsidiary We estimate total loan receivables (TMFSL + TAMO) at Rs 120bn by endFY08E Any sale of vehicle finance biz will significantly de-lever TAMO’s balance