TATA MOTORS

Acquisition of JLR
Archana Badera EPGCFM 06 002
Avipsha Mitra EPGCFM 06 003
Manas Kumar Bid EPGCFM 06 005
Dinesh P S EPGCFM 06 007
A study has been undertaken to understand the process of
acquisition of JLR by TATA Motors by analysing the company’s
and stakeholder stand point. Through this study we see how
India’s biggest Business Conglomerate and arguably the biggest
Automobile manufacturer in India, entered the Global stage
and turned around fortunes of JLR

12/2/2014
TATA MOTORS ACQUISITION OF JLR

 About TATA GROUP

India’s largest Automobile Company with Total revenues of USD 38.6 bn

Leader in Commercial Vehicles in the LMD and HD segments

Amongst the TOP players in Passenger Car Segment in the country

 Origin and Genesis of Strategic Finance situation – Acquisition of JLR

 Consolidated Financial position of TATA Motors before Acquisition

Archana Badera
Avipsha Mitra
Manas Bid
P S Dinesh Page 1
TATA MOTORS ACQUISITION OF JLR

Financing environment in India

The financing pattern plays a vital role for any firm across various industries. The sources of
fund for capital structure are fundamentally the most important decisions taken by a firm The
combination of debt & equity is known as capital structure of the firm. It is thus relevant and
important to understand the financing pattern or capital structure pattern of automobile
industry in India.

Internal financing contributes a significant share of resources as far as Automobile industry is

concerned. This share has increased from the level of 40 per cent during 1991-94 to 55 per
cent during 2001-05.

However, this share has marginally declined in the last phase which corresponds to the trend
in the manufacturing sector as a whole. Also, provision for depreciation forms a major share
in this industry, throughout. The share of funds raised from capital market is relatively high
as compared to other industries right from the 1990s and this share has declined significantly
corresponding to the trend in the manufacturing sector as a whole. Borrowings, Current
liabilities and other provisions were found to be a major source of external financing although
it showed a declining trend. 58 per cent of the total resources have used for Gross fixed
Assets. (Exhibit .1)

Exhibit 1. Source of Finance of Indian Automobile Ancillary -

History Information
1991 2001 2006
Year 1995~~2000
~1994 ~2005 ~2009
Retained Profits 16.46 21.44 27.56 27.73
Depreciation 23.22 23.32 24.96 15.33
Internal Financing 39.72 44.76 54.86 43.08
External Sources 60.28 55.24 46.68 56.93
Funds raised from
19.74 14.04 6.45 NA
Capital Market
Fresh Capital
7.06 5.1 1.76 14.35
Raised
Share Premium 7.16 6.28 1.78 14.3
Borrowings 20.76 18.58 12.18 28.43
Institutional
9.42 4.53 -2.55 NA
Borrowings
Current Liabilities
31.66 16.64 25.9 12.8
& Provisions
Sundry Creditors 14.38 12.56 14.18 7.05

Archana Badera
Avipsha Mitra
Manas Bid
P S Dinesh Page 2
TATA MOTORS ACQUISITION OF JLR

Exhibit 2 – Following data is of yr 2010

TATA’s financial performance & key ratio’s before acquisition

Year 2004 2005 2006 2007 2008

Net Income/(Loss) (Cr) 810.3 1237.0 1528.9 1913.5 2028.9
Net Income per Share
369.1 475.4 524.7 691.9 746.2
(Rs)
Dividend Per Share (Rs) 8.0 13.0 15.0 15.0 6.0

Year 2004 2005 2006 2007 2008

Return on Assets 101.1 113.2 144.3 178.0 203.2
Return on Invested
31.5 28.5 26.5 25.8 19.0
Capital
Quick Ratio 0.5 0.8 1.0 0.9 0.7
Current Ratio 0.7 1.0 1.1 0.9 0.6
Assets Turnover 2.9 3.0 2.7 2.8 2.3

Archana Badera
Avipsha Mitra
Manas Bid
P S Dinesh Page 3
TATA MOTORS ACQUISITION OF JLR

SWOT

The Deal Process

 12/06/2007- Announcement from Ford to sell Land Rover and Jaguar.

 August 2007 - Major bidders identified
 Likely buyers: Tata Motors, M&M, Ceribrus capital Management, TPG Capital,
Apollo Management
 India’s Tata Motors and M&M top bidders ($ 2.3b & $ 1.9b)
 03/01/2008 – Ford announced Tata’s as the preferred bidders
 26/03/2008 - Ford agreed to sell their Jaguar Land Rover operations to Tata Motors.
 02/06/2008 – The acquisition completed

Financing Strategies

Archana Badera
Avipsha Mitra
Manas Bid
P S Dinesh Page 4
TATA MOTORS ACQUISITION OF JLR

Strategies adopted post Acquisition

Soon after the acquisition in 2008, Tata Motors found itself saddled with a debt of Rs 21,900
crore, an uncomfortable position for a company that had been virtually debt free.

Hard times
At JLR, the product wasn’t moving and Bombay House was beginning to feel stretched.
Amid talk of the UK government contemplating a bailout of JLR, Tata Motors’ market value
plunged toRs 6,503.2 crore, with the stock hitting rock bottom Rs 126.45 on 20 November
2008. The market capitalization was less than what it had paid Ford for JLR.

“The global slowdown put the company under tremendous pressure because the management
of JLR had just separated from one big organization and was attaching itself to another not-
so-big group and they were not yet kind of experienced living independently TATA
MOTORS was bleeding. Cash remained priority….alas not available in market.

Ratan Tata came through for Tata Motors, with the parent pumping in capital, driven by the
belief that the JLR acquisition was right and would work. While the turnaround, when it took
place, came as a surprise, Tata Motors saw it three-four quarters in advance.

But before that, in the fiscal ended March 2009, Tata Motors posted its first annual loss in at
least seven years after sales at the luxury units plunged amid the global slump.
The consolidated net loss was Rs 2,500 crore in the year ended 31 March, compared with
profit of Rs 2,200 crore in the year earlier.
The JLR unit made a pretax loss of Rs 1,800 crore as unemployment and the financial crisis
damped sales in the US and Europe.

Cash management

Archana Badera
Avipsha Mitra
Manas Bid
P S Dinesh Page 5
TATA MOTORS ACQUISITION OF JLR

 Short-term goal to manage liquidity with the assistance of KPMG was put in place.

 Secondly mid-term target to contain costs at various levels and the formation of 10-11
cross-functional teams. A number of management changes, including new heads at
JLR, were made.

 Finally, a long-term goal that runs until 2014 was drawn up, focusing on new models
and refreshing the existing ones. The key aims—cash management and checking
costs.
.
A team of young managers was put in charge, in an approach similar to the one followed in
the 2003 restructuring at Tata Motors, with reviews on a daily basis. Tata Motors also
embarked on a plan to divest stakes in group companies to raise cash: In September 2008, it
sold a 1.3% holding in Tata Steel Ltd to holding company Tata Sons Ltd for a total Rs 485
crore. In November 2008, the board approved a Rs 4,147 crore rights offer, which was
completed in June this year. All proceeds were channelled into Tata Motors to make JLR
profitable. Crucially, Tata Motors was able to keep product development plans going, which
has paid off with the global economy reviving and customers returning to JLR showrooms.

JLR’s turnaround has been aided by external factors. Margins rose by a whopping 1,370 basis
points or 13.7% from 2.9% in 30 September 2009-10, reflecting the changed dynamics of the
company as sales rose sharply on the back of new product launches and improved market
sentiments. About half the firm’s turnover is dollar-linked while one-fifth is linked to the
euro. The rupee has strengthened against both currencies this year. Since January, the pound
has strengthened 4.9% against the dollar and 7.7% against the euro.

Cost Rationalisation initiatives

 Single shifts and down time at all 3 UK assembly plants

 Supplier payment terms extended from 45 to 60 days
 Receivables reduced from 38 to 27 days, thus reducing by £ 133 m
 Inventory reduction from 70 to 50 days, thus reduction by £ 217 m
 Action on manpower front:
o Voluntary retirement to 600 employees
o Agency staff reduced by 800
o 450 job cuts
 Agreement with unions to implement pay freeze & longer working hours
 Efficiencies in Engineering and Capital spending’s
 Fixed and marketing costs reduced in line with Sales volumes
 Reduction in non – personal related overheads

Key decisions and choices the business faces

Archana Badera
Avipsha Mitra
Manas Bid
P S Dinesh Page 6
TATA MOTORS ACQUISITION OF JLR

- Acquiring JLR would provide significant potential for revenue synergies, including giving
Tata greater international distribution, broader product range and better customer service
skills

- Tata gains access to world-class engineering capability

- Strengthens relationship between Tata’s steel and motoring businesses

What happened next?

Significant slump in new car sales in late 2008 as a result of the credit crunch; Tata had to
refinance in order to keep JLR solvent. UK government considered a financial aid package,
indicating the strategic importance of JLR to the UK economy

February 2010: Tata secures a £340million loan from the European Investment Bank to
support JLR through recession

May 2011: Tata announces £5b five year investment programme in JLR - focused on new
product development & new equipment at JLR three UK plants + investment in a planned
factory in China. JLR also to link closer with Tata Steel to provide new lightweight steel
alloys for new car models.

November 2011: JLR announces 1,000 new jobs a Land Rover plant in Solihull boosted by
rising demand for SUVs in China, Russia, India and Brazil.

February 2012: Soaring sales of Jaguar and Land Rover cars have helped Indian firm Tata
Motors to a huge rise in profits (up 41% on 2010). JLR arm saw sales rise 37%, helped by
selling 32,000 of its new Range Rover Evoque. China overtakes the UK as JLR’s biggest
market.

March 2012: JLR and Chery Automobile agree a joint venture that should pave the way for
production of Jaguar and Land Rover cars in China.

April 2012: JLR announces that it will build a successor to its previous sports cars called the
F-type at its factory in Birmingham.

Outcomes and Performance

After the acquisition was over in June 2008, the global meltdown and high fuel prices,
especially after September 2008 with vehicle financing and demand drying up, impacted auto
industry worldwide, including Jaguar Land Rover. The volumes over the 10 months post
acquisition reduced by 32% as compared to the comparable period in the previous year
resulting in a Loss before tax of GB £ 281 million. In response Jaguar Land Rover has taken
prompt action to reduce inventory, improve working capital, reduce investments and payroll
costs including more than 2000 job losses.Sales of the Jaguar and Land Rover brands
declined by 20% and 51% respectively from October 2008 – March 2009 as compared to the
corresponding period in the previous year as the demand for premium vehicles declined.

Archana Badera
Avipsha Mitra
Manas Bid
P S Dinesh Page 7
TATA MOTORS ACQUISITION OF JLR

The deal was that the JLR acquisition increased Tata Motors’s debt-equity ratio 3.03 in 2008-
09 from 1.1 a year ago. Just after taking over, Tata Motors faced its toughest challenge when
it incurred a £300 million loss in the first year, with JLR sales slumping by a third. This was
followed by labour problems and negotiations with the British government for access to loans
and guarantees. However, in August 2009, it raised £469 million through global depository
shares. It was the beginning of the turnaround story.

Since then, the company has raised money through several bond issues, which allowed it
greater strategic flexibility to invest in modernisation of plant, product development, and
expansion into emerging markets.

The company turned profitable in 2010-11, when it reported £1.03 billion

JLR became the crown jewel of Tata Motors, contributing 67 per cent of revenues and 81 per
cent of operating profits in FY12.

Financials post Acquisition

Financials Consolidated
Parameters Mar '14 Mar '13 Mar '12 Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06 Mar '05
Total Income 2,35,469 1,92,058 1,68,020 1,24,625 96,073 69,865 36,066 32,906 24,178 19,840
Revenues (Growth %) 23 14 35 30 38 94 10 36 22
PBDIT 34,681 24,756 22,141 17,478 10,371 2,450 4,670 4,247 3,274 2,566
Reported Net Profit 14,104 9,862 13,574 9,221 2,517 -2,465 2,235 2,205 1,706 1,351
Shares in issue (lakhs) 32,187 31,901 31,735 6,346 5,706 4,498 3,855 3,854 3,828 3,618
Earning Per Share (Rs) 44 31 43 145 44 -55 58 57 45 37
EPS Growth % 42 -28 -71 229 -180 -195 1 28 19
ROAE 22 15 21 15 5 -5 6 6 5

Balance sheet

Archana Badera
Avipsha Mitra
Manas Bid
P S Dinesh Page 8
TATA MOTORS ACQUISITION OF JLR

Tata Motors (Consolidated Balance Sheet in Rs.Cr)

Mar '14 Mar '13 Mar '12 Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06 Mar '05
Sources Of Funds
Total Liabilities 1,20,979 81,730 72,161 49,780 43,804 40,681 20,751 15,274 9,685 7,174
Total Share Capital 644 638 635 638 571 514 386 385 383 362
Reserves 64,960 36,999 32,515 18,534 7,641 4,679 8,286 7,310 5,722 4,035
Networth 65,603 37,637 33,150 19,171 8,398 5,304 8,698 7,722 6,131 4,397
YOY Growth in Net worth 74 14 73 128 58 -39 13 26 39
Secured Loans 14,609 16,981 15,774 18,746 21,290 13,706 6,012 4,463 882 577
Unsecured Loans 40,346 26,741 22,930 11,616 13,902 21,268 5,573 2,839 2,498 2,138

Tata Motors (Consolidated Balance Sheet in Rs.Cr)

Mar '14 Mar '13 Mar '12 Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06 Mar '05
Application Of Funds
Gross Block 1,23,773 98,046 87,926 71,757 68,275 62,188 13,164 10,646 9,591 7,764
Less: Accum. Depreciation 54,682 42,878 43,566 36,408 34,414 33,269 6,060 5,427 4,844 3,748
Net Block 69,092 55,168 44,360 35,349 33,861 28,919 7,103 5,219 4,748 4,016
Capital Work in Progress 33,263 18,418 15,946 11,457 8,068 10,533 6,326 2,738 1,100 618
Investments 10,687 9,058 8,918 2,544 2,219 1,257 2,666 1,175 1,262 2,126
Inventories 27,271 20,969 18,216 14,071 11,312 10,155 3,295 3,167 2,497 2,074
Sundry Debtors 10,574 10,943 8,237 6,526 7,191 4,800 2,061 1,702 1,354 1,241
Cash and Bank Balance 29,712 21,113 18,238 11,410 6,060 2,143 1,091 700 484 416
Loans and Advances 39,401 34,358 31,468 19,658 15,709 14,257 10,610 10,517 6,197 2,919
Total Current Assets 67,557 53,024 44,691 32,006 24,563 17,098 6,446 5,569 4,334 3,731
Current Liabilities 78,859 72,225 60,380 41,277 35,657 26,388 12,824 8,780 7,497 6,693
Provisions 20,161 16,072 12,842 9,957 7,644 7,059 2,325 1,630 1,375 1,245
Total CL & Provisions 99,020 88,296 73,222 51,234 43,300 33,447 15,150 10,410 8,873 7,938
Miscellaneous Expenses 0 0 0 0 0 86 7 12 14 22
Total Assets 1,20,979 81,730 72,161 49,780 43,804 40,681 20,751 15,274 9,685 7,174

Dividend Declared

Archana Badera
Avipsha Mitra
Manas Bid
P S Dinesh Page 9
TATA MOTORS ACQUISITION OF JLR

Dividend Declared : TATA Motors

Announcement Effective Dividend Dividend Remarks
Date Date Type (%)
29/05/2014 09/07/2014 Final 100 Rs.2 per share(100%)Dividend
29/05/2013 30/07/2013 Final 100 Rs.2 per share(100%)Dividend
Recommended a dividend of Rs. 4/-
per Ordinary share (200%) and Rs.
29/05/2012 18/07/2012 Final 200 4.10 per 'A' Ordinary share (205%),
both of face value of Rs. 2/- each
(post split) for FY 2011-12.
26/05/2011 19/07/2011 Final 200 Rs.20.00 per share(200%)Dividend
27/05/2010 10/08/2010 Final 150 -
29/05/2009 03/08/2009 Final 60 -
16/05/2008 16/06/2008 Final 150 -
18/05/2007 01/06/2007 Final 150 AGM
19/05/2006 23/06/2006 Final 130 -
(Rs.12.5 per share, including a
17/05/2005 23/06/2005 Final 125 special dividend of Rs.2.50 per
share)
20/05/2004 22/06/2004 Final 40 -

Shareholding pattern – TATA MOTORS

Way Forward

Archana Badera
Avipsha Mitra
Manas Bid
P S Dinesh Page 10
TATA MOTORS ACQUISITION OF JLR

Tata Motors -JLR is now focusing on environmental innovation and collaboration to drive
improvements in the sustainability of their products and business operations, and to optimise
social contribution through advancing knowledge and improving lives.

Changing the mind sets and behaviours of both people and customers will play a pivotal role
in driving these forward.

JLR -TM has set ambitious targets for 2020 by providing clear milestones for JLR business,
building on the progress they have already made to date

TM’s Sustainability
Strategy

JLR has a 360 degree approach to examine product portfolio, operations as well as work with
suppliers, customers, employees and wider stakeholders - creating new partnerships and
business practices.

Archana Badera
Avipsha Mitra
Manas Bid
P S Dinesh Page 11
TATA MOTORS ACQUISITION OF JLR

Future Goals :

1. Demonstrate leadership in sustainable business practices in all activities across the

world

2. Create products that meet future customers’ needs with less environmental impact

3. Inspire future generations with the potential of technology; advancing knowledge and
developing a more sustainable way of living

4. Become a leader in sustainable social development which improves lives, in local and
global communities

5. Engage people, customers and partners in Responsible Business vision

Now JLR-TM has set some stretching targets for 2020 to help achieve these goals;
measuring and monitoring progress right across their business.

The journey has just begun…..strides to achieve

Archana Badera
Avipsha Mitra
Manas Bid
P S Dinesh Page 12