Over a couple of months, the Investor market witnessed a huge slash in the Stock price of Tata Motors. At each stage of price decline, some Investors plunged to buy some hot stocks at a cheaply discounted price tag, some are waiting for more discount in the stock price and in the meanwhile, the already tata motors investors are waiting for an upward so as to book some profit and vacate the space. In the first two weeks of October, the shares went more down reaching the current share price of Rs. 183.75, which is shockingly running at a 7-year low price, seems to be a great buy. So that’s the story up till now. The actual question arises at every stage is: Is Tata Motors a buy now? Let us check if it really has the potential left to climb the ladders. If yes, then how many months/years it may take?
Here is the geographical segmentwise revenue of the Company:
As we can see, excluding the negligible increase in Sales of 3% from India, rest all the revenue contributions have declined on an overall basis. That means around 80% sales contributors have reduced their respective contributions over a year (FY17 to FY18)
Sales drop in Europe with Brexit coming into effect
From the above revenue distribution table, around 15-17% sales come from the European Union. It has decreased by 1.5% YoY.
During the 1H18, European Government took various strict actions in order to reduce the sales of diesel engine driven cars as a motive to curb environmental pollution. This drastically affected the Sales of Cars made by Tata Motors in Europe.
Also, as a result of Brexit, (meaning later the UK and European Union will be entirely two different entities) Europe has hence taken into consideration to apply 10% levy on UK cars imported to Europe and 4% on auto parts. This has resulted in the cut down the production schedule of its UK plant of JLR cars as demand has reduced.
Both the above problems have had a significant role in nosediving the sales numbers from Europe over the year.
If this is the situation before March 2019 (Expected date for Brexit to commence), things may become more pathetic after the actual implication of the separation between the two parties. Though conditions seem to be going bad, there is a silver lining here, that it is in operation to build a new plant at Slovakia, Europe. This may take some long time to resume the Sales growth from Europe as they are not into Diesel cars and the Company needs to find an alternative to this issue too.
Trump earlier this year imposed tariffs on Aluminium and Steel products imported to the US. These tariffs also have contributed to hammer the Sales of the Company, by the end of FY18.
Trump acting as the reason for the inception of the World Trade War happening these days, is expected to levy more such duties in the future. Europe and US add to around 30-32% of the Company’s Sales. This makes up the second negative point in the Investors’ mind about the future expectations from the Company.
The UK government through media and other sources have taken a decision to curb pollution and CO2 emissions. The government wants to achieve compliance over the Global Pollution Control norms.
UK sales dropped by 1% this year. It contributes over 17-18% of the Company’s total Sales.
Adding up the UK to the list of revenue contributors having an uncertain and unstabilized base, we come to a note that 47-50% of the Sales is under vulnerability.
Reduction in China Sales
China as a part of the trade war has also imposed many tariffs on automobiles imported into the country. This has driven for 46% slump in Sales from China, with weaker demand for the cars.
After we append China to the earlier made list, total sales under threat become 65%.
65% may go even further when other small countries are also taken into account… That is a huge number to consider before investing and purchasing the stocks at even a 7-year low price with no factors to peddle the stock price very sooner.
But if you wish to take up some shares in Tata Motors, we would recommend investing in small packets and let it stay untouched for at least 2-3 years. There seems no room for a annual growth to happen until trade conditions and Brexit tensions are loosened, which cannot be predicted. Hence, it’s better to rather be prepared than to predict.