Tata Motors Limited (ADR) (TTM)

Asu24Mb (85.00) Submitted: 4/21/07 4:09 AM : Start Price: $17.74 TTM Score: -41.14

I love screaming value, especially for a company with great growth potential. Let's start with industry rankings. They rank 6 out of 8 for market cap (6.8 Billion), which allows plenty of room for total growth. Growth rankings for revenue and earnings are tops in the industry. That will translate to a higher position in the market cap ranking, which translates to increased returns from the current picture.

We can state the obvious and conclude that a PEG of .68 is cheap. You have to ask why, this is a company that operates in a high growth economy, pays a dividend, and is not diluting there outstanding stock. They have a large some of LT debt on their books which translates to a high interest expense. As I took a close look I noticed 06 was the first year they also had investment income. There LT Investments are actually about 40% higher than their LT Debt. The interest earned from this in 06 allowed them to increase their capital expenditures from the previous year while operating cash flow had decreased from 500 million to 100 million. This cash flow strategy reminds me a bit of middleby (ok I wont go that far).... Their ROE was manually calculated around 18% and their current ratio at 1.11.

I wish I knew more about the operations and internal goals of management. On paper they are doing the right things, buying back moderate amounts of shares, declaring appropriate sized dividends, increasing capital expenditures, suprising earnings estimates constantly etc. 5 year growth is estimated at 20%, I am not sure what this is based off. Future growth looks great and management seems to be reinvesting capital to continue the growth.

Their balance sheet makes me a little hesitate about how they would handle a heavy bear market. The good thing is the current discount on their share price gives a nice margin of safety (percentage anyone?).

One thing concerns me - YOY for 06 Receivables doubled, while Revenue grew 61%. This is a little unfavorable. I would like to know the history of collectability for Tata's receivables. I would also like to know if they are vertically integrated the way companies like Honda are. Do they have a financing department that earnes additional interest revenue from their increased receivables?

Bottom line this stock is undervalued with a high margin of safety and huge growth prospects. If the stock continues to beat estimates it will have no where to go but up. Everyone is worried about larger automakers coming in and taking their market share. This is speculation not valuation.

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