In this post, let's analyse the basic parameters of Tata Motors. We will be analysing the company using three different methods which can get us clarity about the company.
Values are as of 2019
Asset Based calculation method:
This method is called the Asset based calculation. In this we consider the last four financial year earnings to average them and arrive at a reasonable earning capacity of the company. Then we calculate how much is needed to earn that cash flow at a nominal 7% interest rate. This forms one part. The next is net cash in hand. That is calculated by subtracting the total liabilities from financials assets in hand because they are the highly liquid form of asset. The same is given below for Tata Motors.
| Earnings calculation | |||
| Income from operations | 2,85,182 | ||
| - Expenses | 2,80,839 | ||
| Income before tax | 4,343 | ||
| - Tax | 1,477 | ||
| Income after tax | 2,866 | ||
| + Depreciation and Amortization | |||
| + 25% of Selling expense | 0 | ||
| - Maintanence Capital expenditure | |||
| Distributable cash flow | 2,866 | ||
| Excess Cash Calculation | |||
| + Fixed financial assets | |||
| Investments | 1497 | ||
| Other financial assets | 2809 | ||
| + Current financial assets | |||
| Other financial assets | 3213 | ||
| Bank balance | 11089 | ||
| Cash and cash eq | 21559 | ||
| Investments | 8938 | ||
| - Total debt | |||
| Current liabilities | 145457 | ||
| Fixed liabilities | 101034 | ||
| Total | -197386 | ||
| Investment needed @ | Capital needed | + excess cash | Per share value |
| 7.50% | 38,218 | -1,59,168 | -552.67 |
| Without Liabilities | 303.21 | ||
Buffett method:
The last method is called the Buffet Method. We named this method as such because we consider how the great Warren Buffett assesses a company before buying. We calculate the free cash flow by starting at the net income, adding the depreciation, subtracting the borrowings (spanned across 10 years) and the average capital expense over last four years. With this when we estimate the future cash flow for the company for next 10 years and find out the current value for it, we can attain an intrinsic value using this method. For Tata Motors, it is as given below.
| TATA MOTORS calculation | |
| Current Market Price | 133.85 |
| 4 year average capital expense | 112.32 |
| 5 year average profit | 32.55 |
| Free cash flow every year | -79.77 |
| Earnings growth in 10 years | 1.63 |
| Profit growth after 10 years | 53.05 |
| Value after 10 years | 742.67 |
| Year | Current value of money |
| 1 | -74.19 |
| 2 | -68.99 |
| 3 | -64.16 |
| 4 | -59.67 |
| 5 | -55.50 |
| 6 | -51.61 |
| 7 | -48.00 |
| 8 | -44.64 |
| 9 | -41.51 |
| 10 | 320.83 |
| Current Value of Tata Motors: | -187.44 |
To check the intrinsic value and complete fundamental analysis, please see the video below
Disclaimer: We are not SEBI approved Research Analyst or Investment Advisors. Please don't buy based only on our analysis. Do consult your financial advisor before investing.
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