Tata takes the JLR to 🚀

So lest you guys think that I have turned this blog into a history blog, let me quickly do what I do best- talk about Tata Motors.

I have long maintained that TaMo will be a four digit stock and the price action has already taken it to an all time high of ₹800/-. It is now firing on all cylinders, especially its nuclear reactor which is the JLR. The JLR is the reason why TaMo will go to a price of over ₹2000/- and still be a value stock. Consider this fact, TaMo sold 1.01 lakh JLR cars this quarter. At around $100K per car, that’s $10B of sales In a quarter. And since TaMo has begun to break even at around 75-80k cars a quarter, the additional 20k cars per quarter or at least $2B in sales is its operating profit.

There are not many companies in India which can easily do $2B in operating profit in a year, leave alone in a quarter. Now multiply that by 4 and you have close to $8B in operating profit a year by JLR alone. Now add to that what it’s Indian business is making thanks to a resurgence in its PV sales and an upswing in the commercial vehicles business.

As TaMo is fast reducing its debt burden, a greater portion of its Operating profit will flow to the bottom line and it won’t be a surprise if it does over $2B in net profit! At close to 400 crores shares, that’s 40₹ EPS! And at 800₹ a share, it’s trading at just around 20 times earnings, half of which has already become trailing!

So a company which is growing its frees cash flow at almost 100% a year, will soon be net debt free and has a cash minting machine in the form of JLR won’t be trading at 20x but 30-40-50x forward earnings.

The PE expansion is the biggest contributor to a stock returns. Trent is now trading at over 100x its forward earnings, and so is Titan and so is Avenue! It won’t be a surprise if TaMo gets retakes and starts to command a valuation what Maruti got at its peak in 2017!

Even if nothing fantastical happens, considering the fact that it still commands over 80% of an ever rising EV market in India and smaller players with one hundredth of revenue such as Ola are getting $5 Billion valuation, there is no big a deal if as and when it’s EV business raises funds again or does an IPO, that alone will be close to $30-40B!

So my hunch is that we are witnessing an epochal shift in the way this company was valued at and it won’t be a surprise if it goes 5x in ten years from here! At over $50B in current sales, that’s 4x sales in valuation, which Maruti with its horrible products trades at currently!

PS: has anyone seen the new Velar? It’s an amazingly beautiful product with such smooth curves, almost like how an IPhone felt when it revolutionised the way we thought of phones. If a company’s products become aspirational, the valuation has to follow! No doubt LV has the highest market capitalisation across the consumer brands, in the league of Amazons and Teslas!