I’ve been extremely bullish on Tata Motors which is a true elephant in both its girth and gait. It is by far the biggest automaker in India with sales north of over 3.2 lakh crore for the trailing 12 months. This elephant, however was not really dancing in joy as it made losses, quarter over quarter, especially since 2018-19 when it began to rebuild its balance sheet.
Around 2018, its India PV business was in doldrums, the CV business going so so with a looming slowdown and JLR acted more like a white elephant which made losses the moment a car was sold. Since then, the management has been extremely prudent and aggressive in cutting slack and the results are for all to see.
From selling close to 5k vehicles a month in 2018-19, it’s selling almost 50k a month and is a very close number two contender, having sold over 5.26l vehicles in 2022. It has come out all guns blazing in the EV space and now has over 85% market share with an ever dominant portfolio. The JLR business has just begun to show real signs of turnaround with it generating over 5000 crores of free cash in the Q3 FY 2023. This my friend is a signal that this elephant is slowly beginning to dance.
The game is pretty simple. It is breaking even on its India PV business and with sales rising, it will generate close to 1000 crore plus profits there. In JLR, if nothing spectacular happens and the business does little better, it is perfectly capable of throwing over £1-1.5B pounds of free cash. That is over 15000 crores of annual profits in cash and when that happens, even at just 20 times earnings, it’ll be valued at roughly 800-900rs a share! And that’s without assuming anything out of the ordinary ! And the moment the market figures this out, it’ll price up the share to perfection and that I believe has already happened yesterday.
Amidst all the Adani led carnage yesterday, TaMo went up 6% plus. It couldn’t hold much higher levels simply because it faced an absolute rout in related stocks. So I believe over the next quarter or so, all TaMo needs to do is to not throw a bad surprise and we are in for a massive run from here. The beauty of this share is that even though it’s a large cap, its moves are that of a small cap stock. So it can very quickly rise or fall 15-20% in any given week.
There’s one more reason for my absolute bullishness. Tesla, the big daddy of the EV world has reversed its downward trajectory and was up just over 36% last week! Just imagine, a $150B company is going up 36% in a week. Out TaMo is just around $17-18B. Remember, the biggest money is made when a consistently loss making machine suddenly begins to generate free cash and that’s exactly what I am anticipating here.
https://zerotomillion.business.blog/2021/10/13/hello-tata/ and https://zerotomillion.business.blog/2021/05/23/random-investment-thoughts/ are some of the links you might wish to read for a preview of what my earlier thoughts have been on TaMo.
Here are my two cents on other market events:
What Adani group is facing wasn’t entirely unanticipated. Every bull market darlings goes down with some sense of disappointment, a hint of a scam or some external event which looks innocuous but has great significance. So even if the FPO doesn’t or does go through, I am sure the great premium it commanded will remain a thing of the past. This also is the beginning of the end of the rally in PSU stocks which have just been touted as the newest blue chips by Shri Ramdeo Agarwal. I believe I now have a new market indicator. Let me illustrate:
Ramdeoji is a growth and quality investor. So whenever an investor of his calibre enters a hot sector and buys crap, I believe that signifies the absolute top of the hype for that particular stock or sector. He infamously bought Zomato which I had mentioned in a previous blog when I got extremely disappointed with him. Now in a new interview he said he should not have even bothered but in the same vain preached of the great money PSU banks are going to make. Well, with the Adani carnage, the top has been made because now nobody is sure how much exposure these banks have with Adani and if SBI, the lead banker suffers big, the entire sector will suffer. Bull runs end when the darling takes a beating and SBI was the absolute darling of this PSU rally. So am sure, the 750 target for SBI will take five to seven years and a massive downside in the meantime.
https://zerotomillion.business.blog/2022/05/16/history-rhymes/ is a link to my earlier views on this.
So I’m extremely proud of sticking to a framework and not being sucked in, even when great investors have. I didn’t buy any of these Nyka, Paytm, Zomato nor did I buy the PSU banks or Dixon types. The key is to buy businesses which are not one year wonders but who can withstand tough days and still throw good cash.
One view now I’m beginning to strongly hold is the revival of high quality dividend yield stocks, such as ITC, Colgate and the likes. Look for names nobody’s talking about and which have fantastic cash to return to us shareholders. With rates inching up everyday, the only company which can survive and do well is the ones who don’t have debt followed by the ones who are cutting it fast through their own cash flows.
Here’s the book I’m reading currently – it’s called The Thoughtful Investor by Basant Maheshwari and having read the first hundred pages, I’ll rate it right up there with the best books on investing and certainly the best book ever by an Indian on the market. Do read! Also, most of his videos are now available for free on YouTube so you can cherish them both.
Life is all about Compounding! 