Capstone Project: Full Forecast & DCF – Tata Motors Ltd by Kajal Upadhyay

Capstone Project: Full Forecast & DCF – Tata Motors Ltd by Kajal Upadhyay

1. Company Overview

Company: Tata Motors Ltd
Segments:

• Passenger Vehicles (India)
• Commercial Vehicles (India)
• Jaguar Land Rover (JLR – global)

Business Model Summary: Tata Motors is a diversified automotive manufacturer with exposure to emerging and developed markets, cyclicality in CVs, and premium luxury exposure via JLR.

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2. Historical Analysis (Last 5 Years)

Data Source

• Annual Reports (Standalone + Consolidated)
• Investor Presentations

Financial Statements Imported

• Income Statement
• Balance Sheet
• Cash Flow Statement

Key Historical Trends Observed

Revenue

• Cyclical growth with strong contribution from JLR
• India PV recovery post‑COVID
• CV segment linked to infra & capex cycle

Margins

• EBITDA margin expansion due to:
• Operating leverage
• Cost optimization at JLR
• Margin volatility driven by commodity prices & FX

Profitability Metrics

• ROCE improving but still below global auto peers
• ROE volatile due to leverage and cyclicality

Leverage & Liquidity

• Historically high debt at JLR
• Gradual deleveraging trend
• Improved operating cash flows in recent years

✅ Key Takeaway: Tata Motors is transitioning from a high‑leverage turnaround phase to a normalized growth phase.

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3. Key Historical Ratios (Summary)

Metric	Observation
Revenue Growth	Cyclical, improving trend
EBITDA Margin	Expanding
Net Margin	Low but improving
Debt / Equity	Declining
ROCE	Improving, still moderate

🚩 Red Flags: Cyclicality, FX risk, EV execution risk
✅ Positives: Cash flow recovery, demand tailwinds, management discipline

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4. Forecast Assumptions (5 Years)

Revenue Forecast

• Segment‑wise approach:
• India PV: mid‑high single digit growth
• India CV: cyclical recovery based
• JLR: moderate growth with margin stability

Revenue Driver:
Units × Average Realization

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Margin Assumptions

• EBITDA margins stabilize at normalized levels
• Operating leverage benefits offset input cost inflation

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Capex Assumptions

• EV investments
• Capacity expansion
• Assumed as % of revenue (historical average)

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Working Capital

• Receivables, inventory, payables modeled as % of revenue
• Gradual efficiency improvement assumed

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Depreciation, Interest & Tax

• Depreciation linked to capex
• Interest based on average debt balance
• Tax rate normalized to statutory effective rate

✅ All assumptions kept conservative and consistent with history

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5. 3‑Statement Integrated Forecast

Your Excel model must link:

Income Statement

• Revenue → EBITDA → EBIT → PAT

Cash Flow Statement

• CFO driven by profitability + WC
• CFI driven by capex
• CFF driven by debt reduction

Balance Sheet

• Assets funded by retained earnings and debt
• Balance Sheet fully balances every year ✅

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6. Free Cash Flow to Firm (FCFF)

Formula Used

FCFF = EBIT × (1 – Tax Rate)

       + Depreciation

       – Capex

       – Change in Working Capital

Trend

• Near‑term FCFF improving
• Stable positive FCFF in outer years

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7. WACC Calculation

Cost of Equity (CAPM)

• Risk‑free rate (10Y Govt bond)
• Beta (industry adjusted)
• Market risk premium

Cost of Debt

• Average borrowing cost
• Tax‑adjusted

Capital Structure

• Based on target long‑term mix

✅ WACC kept realistic (no aggressive assumptions)

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8. DCF Valuation

Steps

1. Discount FCFF for 5 years
2. Terminal Value using perpetual growth
3. Enterprise Value = PV of FCFF + PV of TV
4. Equity Value = EV – Net Debt
5. Value per Share calculated

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9. Scenario Analysis

Base Case

• Moderate growth
• Stable margins
• Industry‑aligned assumptions

Bull Case

• Strong EV adoption
• Faster JLR recovery
• Margin expansion

Bear Case

• Demand slowdown
• Margin pressure
• FX headwinds

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10. Sensitivity Analysis

Key Sensitivities

• WACC vs Terminal Growth (2D table)
• EBITDA Margin vs Revenue Growth (optional)

✅ Shows valuation range and downside protection.

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11. Valuation Summary

Method	Value
DCF (Base Case)	₹XXX per share
Bull Case	Higher range
Bear Case	Downside range

Comparison with market price → valuation gap identified.

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12. Final Investment Recommendation

Recommendation:
✅ Buy / Hold / Sell (Based on my analysis and output from above)

Rationale

• Improving cash flows
• Deleveraging balance sheet
• Demand recovery + EV optionality

Key Risks

• Cyclicality
• Commodity prices
• EV execution at scale