Auto · investment research
Tata Motors
TATAMOTORS
Verdict
NO ACTION
medium confidence · 3-5 years
Composite score
47/100
Weighted across all eight pillars
Business quality
48/100
Moat, returns, balance sheet, cash, management
Valuation score
29/100
At 28.3x against a sector median of 28.4x, the price embeds roughly 15% earnings growth. Anything less has to come out of the multiple.
Decision intelligence
Every conclusion states what would make it wrong
WHAT
No action. Nothing here is compelling enough to deploy capital today.
WHY
- • Balance sheet scores 15/100 (deteriorating) — Leverage is high enough that a demand shock becomes a solvency question.
- • Cash conversion scores 73/100 (stable) — Reported profit is backed by operating cash.
- • Valuation scores 29/100 (stable) — At 28.3x against a sector median of 28.4x, the price embeds roughly 15% earnings growth. Anything less has to come out of the multiple.
- • Industry & macro scores 68/100 (improving) — Auto (India) demand is improving.
WHERE
Auto · Large cap · position sized to at most 0% of an equity portfolio.
WHEN
Re-run this analysis after the next quarterly result.
WHAT IF WRONG
- • The thesis is wrong if ROCE falls below 10% or cash conversion stays under 70% for two straight quarters.
- • Valuation support fails below ₹704 of fair value — a drawdown to that level is a re-underwrite, not automatically a buy.
- • Watched risk: Leverage — Debt is 3.3x EBITDA.
WHAT NEXT
- • Read the latest quarterly cash-flow statement alongside the P&L.
- • Check Interest rates — it moves the earnings base independently of execution.
- • Compare against the sector peers listed below before sizing anything.
Tata Motors is a competitively exposed auto business compounding revenue at 10.4% and profit at 7.7%, earning 14.2% on capital. Quality scores 48/100 and valuation 29/100 at 28.3x. The decision is therefore no action with medium confidence — this is analysis for learning, not investment advice.
What does this business actually do?
Business understanding before ratios
Tata Motors operates in the Indian auto sector with a large-cap footprint and a listed market value of about ₹354k Cr.
Revenue is earned across 4 reported segments; profitability is driven by realisations, mix and operating leverage rather than one-off items.
Revenue drivers
- • Volume growth in the core segment
- • Realisation / pricing power
- • Mix shift toward higher-margin lines
- • Capacity utilisation
Cost drivers
- • Raw material and input costs
- • Employee cost inflation
- • Interest cost on borrowings
- • Distribution and marketing spend
Moat · 46/100
Regulatory / licence moat
Approvals and order pipelines limit how quickly new entrants can compete.
Segment mix
Growth 13.4% · margin 9.2% — Growing broadly in line with the overall business.
Growth 1.1% · margin 28.1% — Flat to declining; drags the consolidated growth rate.
Growth 30.7% · margin 21.1% — Fastest growing part of the mix — watch whether margins hold as it scales.
Growth 23.1% · margin 29% — Fastest growing part of the mix — watch whether margins hold as it scales.
Analysis pillars
Score, trend and the drivers behind each — no bare numbers
Business & moat
49/100Trend: improving · weight 14%
- MoatRegulatory / licence moat
Approvals and order pipelines limit how quickly new entrants can compete.
- Segment concentrationPassenger vehicles is 7.8% of revenue
Revenue is spread across segments, which softens single-market shocks.
- EBITDA margin20.0%
Margin moved from 16.0% to 20.0% year on year.
Profitability & returns
44/100Trend: deteriorating · weight 16%
- ROCE14.2%
ROCE was 18.3% a year ago. Sustained ROCE above the cost of capital is what compounds value.
- ROE18.6%
Return on equity after leverage — read alongside debt levels.
- Net margin10.4%
Share of every rupee of revenue that reaches reported profit.
Growth quality
40/100Trend: deteriorating · weight 15%
- Revenue CAGR (4y)10.4%
Top-line compounding over the reported history.
- Profit CAGR (4y)7.7%
Profit lags revenue, so growth is being bought with margin.
- Growth sourceCapex-led (organic)
Capex is 10.0% of revenue this year.
Balance sheet
15/100Trend: deteriorating · weight 12%
- Debt / EBITDA3.30x
Leverage is high enough that a demand shock becomes a solvency question.
- Debt / equity1.01x
Capital structure relative to shareholder funds.
- Working capital58 days
Cycle is tight, so growth is largely self-funding.
Cash conversion
73/100Trend: stable · weight 13%
- OCF / PAT105%
Reported profit is backed by operating cash.
- Free cash flow₹785 Cr
Cash left after maintaining and expanding the asset base.
Management & governance
59/100Trend: deteriorating · weight 14%
- Guidance delivery88% of last 8 quarters
Whether management historically delivered what it promised.
- Promoter holding35.7% (-1.5 y/y)
Promoters have been reducing ownership over the last year.
- Pledge8.8% pledged
Pledged promoter shares add forced-selling risk in a drawdown.
- Institutional flowFII -1 · DII -2.07
Direction of institutional ownership over the last year.
- Capital allocationSurplus cash is largely returned to shareholders…
Surplus cash is largely returned to shareholders rather than reinvested.
Industry & macro
68/100Trend: improving · weight 8%
- Demand trendimproving
Auto (India) demand is improving.
- StructureConsolidated
Consolidated — a few large players hold most of the profit pool.
- Competitive intensityhigh
How hard it is to keep pricing and share.
- Macro driversInterest rates, Fuel prices, Rural demand
Variables that move the earnings base regardless of company execution.
Valuation
29/100Trend: stable · weight 8%
- P/E vs sector28.3x vs 28.4x
At 28.3x against a sector median of 28.4x, the price embeds roughly 15% earnings growth. Anything less has to come out of the multiple.
- Growth-adjusted3.68 (PE/growth)
Below ~1.5 the multiple is supported by growth; above ~2.5 it depends on the market staying optimistic.
- FCF yield0.22%
Cash return on the current market value, before any growth.
Financial history
Profit, cash and returns over five reported years
| Year | Revenue | EBITDA | PAT | OCF | FCF | ROCE |
|---|---|---|---|---|---|---|
| FY2022 | ₹57,374 Cr | ₹14,344 Cr | ₹6,598 Cr | ₹6,400 Cr | ₹1,236 Cr | 15.6% |
| FY2023 | ₹64,360 Cr | ₹13,516 Cr | ₹9,867 Cr | ₹9,768 Cr | ₹6,550 Cr | 18.6% |
| FY2024 | ₹71,345 Cr | ₹13,556 Cr | ₹8,811 Cr | ₹8,899 Cr | ₹3,191 Cr | 16.9% |
| FY2025 | ₹78,330 Cr | ₹12,533 Cr | ₹6,392 Cr | ₹6,584 Cr | ₹-2,816 Cr | 18.3% |
| FY2026 | ₹85,316 Cr | ₹17,063 Cr | ₹8,873 Cr | ₹9,317 Cr | ₹785 Cr | 14.2% |
No accounting-quality flags in the sample data.
Ownership & management
Who owns it, and have they delivered?
Promoter
35.7%
-1.5 y/y
Pledge
8.8%
Forced-selling risk
FII
9.8%
-1 y/y
DII
13.3%
-2.07 y/y
Guidance delivered in 88% of the last eight quarters; average leadership tenure 13 years.
Surplus cash is largely returned to shareholders rather than reinvested.
- ⚠ Related-party transactions at 7.2% of revenue
Industry & macro context
Auto (India)
Demand trend
improving
Cyclicality
low
Competition
high
Regulatory pressure
low
Consolidated — a few large players hold most of the profit pool.
Macro drivers: Interest rates · Fuel prices · Rural demand
Valuation
fair versus the sector
P/E
28.3x
Sector median P/E
28.4x
P/B
3.78x
Earnings yield
3.53%
FCF yield
0.22%
PE / growth
3.68
Estimated fair-value band ₹704 – ₹899 , built on FY2026 EPS of ₹24.1. Gap to the current price: -16.7%. Ranges are a modelling output, not a target price.
At 28.3x against a sector median of 28.4x, the price embeds roughly 15% earnings growth. Anything less has to come out of the multiple.
Risk register
What can break the thesis, and how it is monitored
- Leveragemedium
Debt is 3.3x EBITDA.
Monitor: Quarterly gross debt and interest coverage.
- Promoter pledgemedium
8.8% of promoter holding is pledged.
Monitor: Pledge disclosures with each shareholding filing.
- Governancehigh
Related-party transactions at 7.2% of revenue
Monitor: Annual report disclosures and auditor commentary.
Ongoing thesis monitoring
The thesis is a living position, not a one-time verdict
| Metric | Currently | Thesis holds if | Thesis breaks if |
|---|---|---|---|
| ROCE | 14.2% | stays above 11% | falls for two consecutive years |
| Cash conversion | 105% | stays above 80% | drops below 70% while revenue grows |
| Revenue growth | 10.4% CAGR | tracks the 15% priced in | slows for two quarters with no margin offset |
| Promoter holding | 35.7% | stable or rising | falls sharply or fresh pledge appears |
Peers in the same sector
Compare before sizing anything
Data quality 72/100
Stated openly, as required by the product principles
- • Fundamentals in this build come from a deterministic sample dataset, not licensed exchange filings.
- • Segment, ownership and management figures are illustrative and must be verified against annual reports.
- • Educational analysis only — not a recommendation to buy or sell any security.