Tata Motors Limited

Eliminating A Discrepancy and Driving Shareholder Value

June 10, 2014

Disclaimer
THE ANALYSES PROVIDED MAY INCLUDE CERTAIN STATEMENTS, ESTIMATES AND PROJECTIONS PREPARED WITH RESPECT TO, AMONG OTHER THINGS, THE HISTORICAL AND
ANTICIPATED OPERATING PERFORMANCE OF TATA MOTORS LIMITED (THE COMPANY). SUCH STATEMENTS, ESTIMATES, AND PROJECTIONS REFLECT VARIOUS
ASSUMPTIONS BY KNIGHT ASSETS CONCERNING ANTICIPATED RESULTS THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC, COMPETITIVE, AND OTHER
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ACCURACY OR COMPLETENESS OF SUCH STATEMENTS, ESTIMATES OR PROJECTIONS OR WITH RESPECT TO ANY OTHER MATERIALS HEREIN. ACTUAL RESULTS MAY VARY
MATERIALLY FROM THE ESTIMATES AND PROJECTED RESULTS CONTAINED HEREIN. NO INFORMATION IS CONTAINED HEREIN WITH RESPECT TO RISKS OR CONFLICTS OF
INTEREST THAT MAY BE SIGNIFICANT. YOU SHOULD CONDUCT YOUR OWN ANALYSIS THEREOF.
THIS PRESENTATION INCLUDES INFORMATION BASED ON DATA FOUND IN COMPANY FILINGS WITH THEIR RELEVANT REGULATORS, INDEPENDENT INDUSTRY PUBLICATIONS
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NEITHER KNIGHT ASSETS & CO. LLP (KNIGHT ASSETS), NOR ANY OF ITS AFFILIATES ACCEPTS ANY LIABILITY WHATSOEVER FOR ANY DIRECT OR CONSEQUENTIAL LOSS
HOWSOEVER ARISING, DIRECTLY OR INDIRECTLY, FROM ANY USE OF THE INFORMATION CONTAINED HEREIN.

A Premium Global Auto Manufacturer

The Company has transformed

itself into a global automobile
company, with the Jaguar and
Land Rover brands accounting for
nearly 85% of revenues.

A Tale of Two Managements

Ford spent US$ 50 Billion* over two decades of its
ownership of Jaguar without ever turning an annual
profit

Tata Motors purchased Jaguar Land Rover from Ford

in 2008, for US$ 2.3 Billion, and in a mere 5 years
makes an annual profit equal to the acquisition price

*based on analyst estimates

Delivering on a Successful Strategy

EBITDA* & EBITDA margin
(US$ mm)

Product portfolio
receiving highest
praise from
commentators and
customers alike

9%

16%

15%

8,033
6,336

1,745

FY 2010

FY 2014

FY 2016e

Jaguar Land Rover Volumes

(Units)

It is an exceptional sports car, sharp

and invigorating and full of life and
charisma
Top Gear Jaguar F-Type review

590,792
429,861
193,982

FY 2010
*Consolidated
Source: Company, Bloomberg, Analysts Estimates

FY 2014

FY 2016e
5

A Discrepancy

36%
Discount

As of June 10, 2014

A Shares trade at an
irrational discount to the
Ordinary Shares.

Warren Buffetts Perspective

From time to time, a different
supply-demand situation will
prevail and the B will sell at some
discount. In my opinion, again,
when the B is at a discount of
more than say, 1%, it offers a
better buy than the A.
Shareholder memo regarding Berkshire Hathaways
Class A and Class B stock, 02 February 1999*

*Berkshire Hathaway Class A stock has 6.67x the voting rights of Class B stock

Possible Explanations for the Discount

1

First company to issue dual class shares and is the

only listed Indian company of relevance

A lack of balance in the economic rights and

liquidity between the two share classes

Market Participants lack of experience and

understanding in investing in such securities
8

Only Dual Class Company

Only

Relevant
Company

Given the immaculate corporate

governance standards of Tata
Motors, the discount is not
comparable to that of other Indian
companies with such dual class
share structures.

Economic Rights and Liquidity

Imbalance

Of Economic Rights
and Liquidity

The A Shares represent 15% of the

underlying economic value of the
Company and unlike the Ordinary
Shares have no NYSE Listing.

10

Efficient Market Pricing of the Spread

3%
Spread

Tata Motors dual class shares

should trade at similar spreads to
that of other prominent global
companies.

11

Comparable Company Share Class Spreads

Spread Between Share Classes*

Market Cap
(US$ Billion)

Current

1 year
Average

3 year
Average

5 year
Average

21st Century Fox

81.46

-2.77%

-1.26%

0.64%

5.10%

Liberty
Interactive

14.73

-0.54%

-0.18%

-0.57%

-0.41%

Viacom

37.68

1.14%

1.24%

1.74%

2.26%

Molson Coors
Brewing

12.31

-1.55%

0.08%

0.41%

-0.22%

Constellation
Brands

15.74

1.32%

-0.03%

0.02%

-0.02%

Berkshire
Hathaway

317.25

-1.04%

-0.96%

-0.93%

-0.80%

Volvo

30.03

1.54%

-0.03%

0.05%

-0.89%

Tata Motors

23.67

35.48%

48.87%

45.50%

40.40%

Company

Source: Bloomberg, Knight Assets, as of June 10, 2014

*A negative number implies that the junior voting stock trades at a premium to the super voting stock.

12

Key Attributes of Comparable Companies

1

Pedigree and reputation of the management

and/or the large shareholder is pre-eminent

Global nature of the companys underlying

business and its products

A track record of creating long-term value for

shareholders

Attractive fundamental business value and

prospects for future growth
13

Pre-eminent Reputation

140
Years

The Tata name has been respected

for more than a century for its
adherence to strong values,
business ethics and shareholder
returns.

14

A Global Business

90%
Value

The Companys value is primarily

attributable to the iconic Jaguar
and Land Rover brands and their
related earnings.

15

Focused on Creating Long-Term Value

JLR

Division

Bought Jaguar Land Rover (JLR) in

the depths of the financial crisis
for the long-term benefit of the
Company and shareholders.

16

Attractive Fundamentals

Model Age*

3.3
Years

The Company is at a secular

growth inflection point 4 new
model releases over the next two
years.
A high correlation between sales
volume, product cycle strength
and lowest model age should
translate into attractive returns for
shareholders.

*FY 2016e: Lowest amongst its peer group Mercedes, BMW and Audi.

17

A Growing Business
Revenues*
(US$ mm)

34,692

39,440

19,531

FY 2010

FY 2012

EBITDA*
(US$ mm)

FY 2014

6,336
4,672
1,745

FY 2010

*Consolidated
Source: Company, Bloomberg, Analysts Estimates

FY 2012

FY 2014

18

Significant Gains From Deleveraging

Market Cap
(US$ mm)

23,672
17,146

9,186

FY 2010

FY 2012

Current

4.4x

1.0x

0.4x

Net Debt /
EBITDA (x)
Net Debt*
(US$ mm)

7,622
4,633
2,617

FY 2010
*Consolidated
Source: Company, Bloomberg, Analysts Estimates, as of June 10, 2014

FY 2012

FY 2014

19

On a Solid Growth Trajectory

FY 2010

FY 2014

FY 2016e

JLR
Volumes

193,982

429,861

590,792

JLR
EBITDA Margin

5.4%

17.5%

16.5%

JLR
Product Range

Non-existent product line

Significant operational
inefficiencies
Lack of legacy R&D
investment

New Models

Jaguar: XJ

New model releases over

the past 2 years went on a
hyper sales drive - Evoque

New Models

Jaguar: XF, XF Sportbrake,

F-Type

LR: Evoque, Range Rover,

Range Rover Sport

A new model released

every 6 months for the
past 2 years
Production expands ~50%

New Models

Jaguar: F-Type Coupe,

Small Jag, XF, C-X17

LR: Discovery, Defender

JLR % Of
Total Revenues

53.3%

82.2%

89.1%

JLR % Of
Total EBITDA

33.1%

89.5%

94.6%

Consolidated
Leverage*

5.27x

1.96x

1.48x

Source: Company, Knight Assets, Bloomberg, Various Analysts Estimates

*Total Debt to EBITDA

20

Significantly Undervalued
2014E
P/E

Tata
Motors*

BMW

Daimler

2014-16E
EPS CAGR

12.2%

8.9x

10.6x

11.6x

5.1%

10.8%

PEG

2016E
PBV

2016E
ROE

PBV /
ROE

0.7x

1.3x

2.1x

1.3x

13.8%

9.4x

1.1x

1.3x

14.8%

8.8x

19.9%

6.6x

Tata Motors exhibits stronger forecast EPS growth and ROE

and yet trades at a discount to its peers
*Where applicable, metrics are based on the Ordinary shares. The A shares would have lower metrics due to the discount. Figures and estimates have
been calendarized
Source: Company, S&P CapIQ, Analysts Estimates, as of June 10, 2014

21

A Perspective on the Spread

2010

A Complete Transformation

2014

A Premium Auto Manufacturer

A long track-record of poor financial performance by JLR, under Fords

ownership, and Tata Motors lack of experience in the premium auto segment
made investors sceptical about the companys future prospects.

Conservatively Capitalised Balance Sheet

The JLR deal, a slowdown in India and the significant capex required to create a
refreshed product line continued to stress the balance sheet.

A Profitable and Prominent Global Business

JLR, along with its razor thin margins at the time, only contributed to
approximately a third of the EBITDA and half the revenues.

Leading Premium Products Across the Value Chain

There has been an intense focus on R&D in order to create a premium product
line up covering the entire value chain since the acquisition. New model
launches will reduce JLRs model age by 40% and expand its capacity by over
50% over the next two years.

The Spread Between the Share Classes is Irrational Today

22

Catalysts and Solutions for Convergence

In all stakeholders interests for the A Shares to be
priced efficiently
The Tata Group and management are unenthused
about this discrepancy in the capital structure
All possible solutions should be explored
Corporate actions
Diversifying the shareholder base further internationally
Evaluating other potential sources of investor demand
A Significant Opportunity to Enhance the Shareholder
Friendly Stance of the Company with Investors Globally
23

Solutions for Shareholder Value Creation

1

Balancing the Economic Rights

through a Corporate Action

Diversifying the Investor Base

Globally

Convergence

P/E Expansion

Instinctive Association of the Key

Brands and the Company

Evaluating Other Specific Sources

of Investor Demand

4
24

Solutions Evaluation and Impact

1

A Share
Bonus

NYSE
Listing

Company
Name

Index
Inclusion

Irrationality
Elimination

Investor Base
Diversification

P/E Multiple
Expansion

Expected Time
to Implement

15 30
Days*

15 30
Days*

Management
Dependent

Requires
Engagement

Provides immediate

balance in economic
rights (legal limit)

Summary

Makes the A

Shares a relevant
currency
Tata Group can

increase their voting

rights gradually

U.S. markets and

Reflect the two

The Companys

investors have had

dual class shares for
two decades
Does not require
any material filings
or procedures
Most dynamic and
liquid markets

other substantial
brands
Would have an
unknown positive
effect on P/Es
Would increase
investor base by an
unknown factor

bankers will engage

with index inclusion
committee
Ideally should be
done post bonus
announcement
Additional demand
from investors

*Post corporate action(s) announcement and requisite shareholder approval(s) to amend the Articles of the Company

25

Our Due Diligence

U.S. NYSE
Listing

Global
Investment
Bank
Validation

U.S. SEC
Regulatory

India
Legal

India
Proxy Firms

Current
Shareholders
and
Prospective
Investors

26

Appendix 1

Case Studies

Google Inc.
Created additional share class by way of a stock dividend
(aka bonus)
- Paid dividend of 1 new Class C share for each
outstanding share of Class A and Class B
New shares known as Class C and provides management
tactical and strategic flexibility
- Over time, Class C share will become the primary
equity trading line
S&P Dow Jones Indices will add the Class C stock to the
S&P 100 and S&P 500 indices
- Constituents in those indices rose to 101 and 501
Google Inc.

Par Value

Shares Out

Price

Voting Right

Class A

0.001

280,844,569

557.51

1.0

Market Cap.
(US$ Billion)
155.7

Class B

0.001

55,800,053

556.21

10.0

30.9

Class C

0.001

336,644,622

554.90

0.0

186.2
28

Fiat S.p.A.
Similar turnaround of Chrysler has made Fiat consider
several strategic changes
Changed the name of the company from Fiat SpA to Fiat
Chrysler Automobiles N.V.
In the process of changing its primary listing jurisdiction
from Italy to the U.S.
Analysts estimate that the value of the company will
increase substantially post the U.S. listing due to a P/E
expansion

29

Infosys Limited
US is the key market for Infosys

Infosys wanted to raise its brand equity and attract more US customers
Being listed on the US markets was considered as one of the key steps to
increase brand awareness in the US

Infosys got listed on NASDAQ in 1999

Subsequently, they did 3 sponsored ADR offerings in the year 2003, 2005
and 2006
In 2006, Infosys did their 3rd Sponsored ADR with an aim to increase ADR
free float and get included in Nasdaq-100 index
Subsequent to the ADR offering, Infosys got added to the Nasdaq-100
index
Shares Out

Price (US$)

Voting Right

Ordinary Shares

481,765,506

54.86

1.0

Market Cap.
(US$ Billion)
26.43

ADRs

92,470,660

54.30

0.0

5.02

Infosys Limited

30

Sponsored ADR Rumours

In 2010, several newspaper articles suggested that
the Company was considering a sponsored ADR
offering for the A Shares
This caused a sharp compression in the spread
Spread Compression on Sponsored ADR Rumours
45

40

35

30

25
04/01/2010

04/04/2010

Source: Bloomberg, Knight Assets

04/07/2010

31

Access a Latent Pool of Capital

Most of the ADR holders of Indian firms do not hold, or hold a
negligible position, in the respective Indian listings
Most of the Tata Motors ADR holders do not hold either the
ordinary or A Shares
Many asset managers which own the shares of GM and Ford
currently do not own Tata Motors ADRs
Listing the ADR of the A Shares in the US will help the
Company tap a latent pool of capital for the A Shares in
addition to several non-equity focused asset managers who
trade across the capital structure and are familiar with trading
dual class share structures

32

ADR v/s Ordinary: Shareholders

Most of the ADR holders of Indian firms do not hold / hold negligible position in their respective Indian listings

HDFC Bank

Infosys
US$mn
Shareholder
JPMORGAN CHASE
ACADIAN AM
UBS AG
SPRUCEGROVE IM
BLACKROCK
COMMONWEALTH BANK OF AUSTRALIA
GENESIS ASSET MANAGERS
SCHRODERS PLC
ARROWSTREET CAP LIMITED PARTNER
INVESCO LTD
FRANKLIN RESOURCES
ABERDEEN
FRANK RUSSELL TRUST COMPANY
WELLS FARGO & COMPANY
CAPITAL GROUP COMPANIES INC
HSBC HOLDINGS PLC
FISHER INVESTMENTS INC
STATE STREET CORP
TRILOGY GLOBAL ADVISORS LLC
DIMENSIONAL FUND ADVISORS LP
PARAMETRIC PORTFOLIO ASSOCIATES
MARTIN CURRIE LIMITED
POLARIS CAPITAL MANAGEMENT
MORGAN STANLEY
AQR CAPITAL MANAGEMENT LLC

Market Value of Holding

ADR
Ord
683
380
433
14
294
33
175
174
480
156
54
152
146
109
134
122
67
111
594
108
1,308
98
2
94
12
90
145
84
5
82
76
2
74
73
14
72
64
6
59
57
72
55
-

US$mn
Shareholder
JPMORGAN CHASE & CO
VONTOBEL HOLDING AG
CAPITAL GROUP COMPANIES INC
FMR LLC
LAZARD LTD
FISHER INVESTMENTS INC
MASSACHUSETTS FINANCIAL SERVICES
SCHRODERS PLC
VANGUARD GROUP INC
HARDING LOEVNER LP
BLACKROCK
UNIVERSAL INVESTMENT CO
HARRIS TRUST & SAVINGS BANK
WASATCH ADVISORS INC
THORNBURG INVESTMENT MGMT INC
INDUS CAPITAL PARTNERS LLC
WELLS FARGO & COMPANY
UBS AG
FIL LIMITED
MORGAN STANLEY
HANSBERGER GLOBAL INVESTORS INC
T ROWE PRICE GROUP INC
CREDIT SUISSE AG
AMP LTD
DEUTSCHE BANK AG

Market Value of Holding

ADR
Ord
763
414
551
265
422
1,446
258
198
244
220
216
77
181
336
172
374
167
156
307
129
125
229
87
82
81
74
7
72
21
70
215
65
85
58
58
96
55
1
52
50
14

33

ADR v/s Ordinary: Shareholders (Contd)

There are different set of shareholders for ADR v/s Ordinary Shares of Indian firms

Dr Reddys

Sesa Sterlite
US$mn
Shareholder
HSBC HOLDINGS PLC
BLACKROCK
DIMENSIONAL FUND ADVISORS LP
LSV ASSET MANAGEMENT
SEGANTII CAPITAL MANAGEMENT LTD
MORGAN STANLEY
STATE STREET CORP
BANK OF NEW YORK MELLON CORP
NATIXIS SA
NEWGATE CAPITAL MANAGEMENT LLC
GRANTHAM MAYO VAN OTTERLOO & CO
VAN ECK ASSOCIATES CORP
JANE STREET HOLDING LLC
WASHINGTON STATE INVESTMENT BOAR
CANADA PENSION PLAN INVEST
PRUDENTIAL FINANCIAL INC
MANULIFE FINANCIAL CORP
SCEPTER HOLDINGS INC
APERIO GROUP LLC
GRATIA CAPITAL LLC
LEE MUNDER CAPITAL GROUP LLC
JANE STREET GROUP LLC
COMMONWEALTH BANK OF AUSTR
NORTHERN TRUST CORPORATION
UBI PRAMERICA SGR

Market Value of Holding

ADR
Ord
78
0
71
100
65
64
42
18
14
13
1
12
26
12
1
9
9
32
7
7
6
5
5
1
5
0
4
4
4
4
3
3
3
2
3
-

US$mn
Shareholder
BLACKROCK
FISHER INVESTMENTS INC
COMMONWEALTH BANK OF AUSTR
FIL LIMITED
VANGUARD GROUP INC
SCHRODERS PLC
ACADIAN ASSET MANAGEMENT LLC
JPMORGAN CHASE & CO
PRINCIPAL FINANCIAL GROUP INC
CREDIT SUISSE AG
PRUDENTIAL FINANCIAL INC
ARROWSTREET CAP LIMITED PARTNER
SECTORAL ASSET MANAGEMENT
CAUSEWAY CAPITAL MANAGEMENT LLC
MORGAN STANLEY
UBS AG
AQR CAPITAL MANAGEMENT LLC
TRILOGY GLOBAL ADVISORS LLC
WELLINGTON MANAGEMENT CO LLP
STATE STREET CORP
DIMENSIONAL FUND ADVISORS LP
TODD ASSET MANAGEMENT LLC
TEACHERS RETIREMENT SYSTEM OF KY
CREDIT AGRICOLE SA
GOLDMAN SACHS GROUP INC

Market Value of Holding

ADR
Ord
92
89
91
91
1,032
55
166
51
47
49
54
33
7
32
63
25
10
23
22
1
21
17
17
6
15
4
14
2
14
13
13
0
13
0
13
4
12
12
12
11
-

34

ADR v/s Ordinary: Shareholders (Contd)

Most of the Tata Motors ADR holders do not hold either the Ordinary or A Shares

Tata Motors
US$mn
Shareholder
BLACKROCK
JPMORGAN CHASE & CO
AMERICAN CENTURY COMPANIES INC
ACADIAN ASSET MANAGEMENT LLC
LAZARD LTD
FRANK RUSSELL TRUST COMPANY
ALLIANZ SE
FISHER INVESTMENTS INC
TRILOGY GLOBAL ADVISORS LLC
LSV ASSET MANAGEMENT
WILLIAM BLAIR & COMPANY LLC
BARROW HANLEY MEWHINNEY & STRAUS
CAPITAL GROWTH MANAGEMENT
FIL LIMITED
SCHRODERS PLC
THORNBURG INVESTMENT MGMT INC
PRINCIPAL FINANCIAL GROUP INC
AQR CAPITAL MANAGEMENT LLC
PRUDENTIAL FINANCIAL INC
MANAGED ACCOUNT ADVISORS LLC
BANK OF NEW YORK MELLON CORP
CREDIT SUISSE AG
HENDERSON GROUP PLC
F&C ASSET MANAGEMENT PLC
UBS AG

ADR
233
218
186
171
166
154
153
151
146
133
105
96
94
89
71
71
64
63
57
52
48
47
44
43
43

Market Value of Holding

Ord
127
232
13
18
4
71
230
199
156
26
58
1
6
4

DVR
12
24
2
8
35

A Share Bonus Analysis

No material impact to the shareholders of either class Post-Bonus
Pre Bonus
Share Class
No. of Shares

Economic
Rights

Post Bonus
Voting
Rights

Economic
Rights

Voting
Rights

2,736,713,122
912,304,470
3,649,017,592

75.0%
25.0%
100.0%

96.8%
3.2%
100.00%

939,556,205
129,562,339
1,069,118,544

25.7%
3.6%
29.3%

33.2%
0.5%
33.7%

1,797,156,917
240,279,880
2,037,436,797

49.3%
6.6%
55.8%

63.5%
0.8%
64.4%

542,462,251
542,462,251

n/a
14.9%
14.9%

1.9%
1.9%

No. of Shares

Company Share Capital Structure

Ordinary Shares
A Shares

2,736,713,122
481,966,945
3,218,680,067

85.0%
15.0%
100.0%

98.3%
1.7%
100.0%
Tata Group

Ordinary Shares
A Shares

939,556,205
3,478,587
943,034,792

29.2%
0.1%
29.3%

33.8%
0.0%
33.8%
Ordinary Shareholders

Ordinary Shares
A Shares

1,797,156,917
1,797,159,917

55.8%
n/a
55.8%

64.5%
64.5%
A Shareholders

Ordinary Shares
A Shares

478,488,358
478,488,358

n/a
14.9%
14.9%

1.7%
1.7%

Source: Company Filling (as of March 31, 2014), Knight Assets

36

Analyst Coverage
Only one global auto sector analyst covers the stock
Most of the Indian analysts are generalists cover various
sectors
No analyst coverage or mention of the A Shares in reports

*Brief coverage that mentions a price target on the A Shares and that they are a better risk-reward investment and/or a price target
based on the average historical discount.

37

Thank You

Creating Shareholder Value and a Win-Win Solution for all Stakeholders