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General Body Meeting 09.22.11. Agenda. Announcements News Updates Macro Update European Renewables UBS Rogue Trading Tata Motors Pitch. News Updates. Operation Twist. FOMC decides to “extend the average maturity of its holdings of securities”

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Presentation Transcript
agenda
Agenda
  • Announcements
  • News Updates
    • Macro Update
    • European Renewables
    • UBS Rogue Trading
  • Tata Motors Pitch
operation twist
Operation Twist
  • FOMC decides to “extend the average maturity of its holdings of securities”
  • “…purchase $400 billion of Treasury securities…” with proceeds from sale of short term securities
  • Fed out of short term tools; aims at lowering long term rates, flattening yield curve
  • Citation of dual mandate; inflation not a current concern
obama s buffet tax proposal
Obama’s “Buffet Tax Proposal”
  • New tax rate for individuals making more than $1 million per year
  • Obama hasn’t specified a rate or how much revenue will be generated by the plan—is leaving it to Congress to calculate
  • Many investors pay no more than 15% of income—capital gains, dividends, “carried interest”
  • Sharpening contrast between Dems/Reps heading into 2012
renewables government legislation overview
Renewables - Government LegislationOVERVIEW
  • Grid Parity Pressure – LCOE* ($/MW)
    • Conventional Coal – $ 65.3
    • Wind – $ 83.9
    • Wind Offshore– $209.3
    • Solar PV – $194.6
    • Solar Thermal– $259.4
  • Government Legislation & Subsidies
    • FiT
    • RPS
    • ITC / ITC Cash Grant / PTC
    • DOE Loan Guarantee Program

*Source: Energy Information Administration, Annual Energy Outlook 2011, December 2010, DOE/EIA-0383(2010)

renewables government legislation european north american updates
Renewables - Government LegislationEUROPEAN & NORTH AMERICAN UPDATES
  • U.S.
    • ITC Cash Grant – 12/2011; DOE Loan Guarantee – 9/2011
    • ITC – 12/2016
    • RPS Standards boosting renewable energy activity
  • Brazil
    • Reverse Auction Mechanism – Tariffs 42% lower than PROINFA
  • Germany
    • Retroactive FiT cuts + caps; Expecting further cuts 01/2012
    • Accelerated nuclear fears – Shuts 7 of 17 nuclear power plants
  • Italy
    • Budget issues along with lack of transparency; retroactive FiT cuts
  • Spain
    • Most days of sun in Europe; generous FiT; retroactive cuts; installation caps
ubs rogue trader
UBS Rogue Trader
  • $2.3 billion loss
  • 3 Years in the making
  • UBS Market Cap down 4.4 billion
  • UBS internal controls questioned
tata motors nyse ttm

Tata Motors (NYSE: TTM)

Miles Moen

John Yoshida

overview
Overview
  • Thesis
  • Macro Overview
  • Industry Overview
  • Business Overview
  • Analysis
  • QuanTeam
  • Proposal
main thesis points
Main Thesis Points
  • Current short-term risks outweighing long-term potential
    • Current price level makes investment extremely attractive
    • Short term play for correction
  • Geographic and risk diversification for portfolio
india s current economic condition
India’s Current Economic Condition
  • GDP: 1,537 billion dollars
  • Inflation Rate: 9.22%
  • Interest Rate: 7.25%
  • Exchange Rate: 48.98 Rupees: 1 Dollar
  • Unemployment Rate: 9.4%
  • Sustained long run growth is expected
macro take on auto industry
Macro take on Auto Industry
  • Leading export destinations:
    • UK
    • EU
    • South Africa
  • Need for further infrastructure investment
  • Impact of oil prices
  • Indian Automotive Mission Plan
  • Allow 100% FDI
india s middle class consumer demographics
India’s Middle Class Consumer & Demographics
  • Average Income in 2011
  • *TATA Nano = 100,000 INR

280,000 INR

  • Middle class size projected in 2025
  • *From 50 million in ‘10

583 million

  • Percentage Poverty decline in 5 yrs.
  • *(37.2% in ’04 to 32% in ‘09)

-5.2%

Rapid growth of middle class + Greater demand for individual mobility (i.e. luxury goods) =

Rising Demand for Automobiles

Over the next 20 years, we expect to see spending on cars growing by 12 percent per year (McKinsey & Co.)

auto manufacturing overview
Auto Manufacturing Overview
  • Increasingly competitive space
  • Race to the bottom for lower end cars
  • Demand factors
    • Fuel prices
    • Access to capital
    • Road infrastructure
  • Stricter emission standards
competition
Competition
  • Auto manufacturers are increasingly diversifying
  • Lots of cars for any given space
  • Increasing reliance on brands
  • Sourcing raw materials increasingly important to price
fuel prices
Fuel Prices
  • Increasing cost of diesel and gasoline
    • Leads to less demand from trucking companies due to smaller margins
  • Improving technologies help increase fuel efficiency
  • Consumers also weary of purchasing gas guzzling cars
access to capital
Access to Capital
  • Many purchasers use credit to afford a vehicle
  • Higher interest rates leads to less purchases
  • India has been raising rates to combat inflation
  • Customers also worried about another credit crunch
road infrastructure
Road Infrastructure
  • Improved roads and infrastructure leads to higher demand
  • Trucking goods becomes a viable alternative
    • Especially prevalent in developing nations
  • People need roads to drive on, otherwise no point to owning a car
road infrastructure1
Road Infrastructure
  • $105 billion US to be spent over next 5 years to improve roads
emissions
Emissions
  • Countries are implementing tougher emission standards
  • Requires expensive redesigns of cars and new technology
  • Will require company’s to change over their fleets of trucks
tata motors
Tata Motors
  • India’s largest automobile company
  • 3rd largest bus manufacturer in the world
  • 4th largest truck manufacturer in the world
  • Market leader in commercial vehicles
  • 3rd largest manufacturer in passenger cars
subsidiaries
Subsidiaries
  • Many subsidiaries and affiliates
  • Allows world-wide reach
  • Vertical integration throughout process
india business
India Business
  • Large industry growth in both commercial and passenger vehicles
  • 60% market share in commercial vehicles
  • Continue to expand product offering
  • Focus on low cost and reliability
  • Expanding and innovating to maximize growth
commercial vehicles
Commercial Vehicles
  • Dominance in market share in all commercial vehicle markets
small vehicle growth
Small Vehicle Growth
  • Strong predicted growth in small commercial vehicles
  • Tata dominates with Ace brand
exports
Exports
  • Exports of Tata branded cars grew 70%
    • Mainly to Asian countries
  • Building facilities in other areas to improve reach
    • South Africa just opened
expansion
Expansion
  • Significant capacity to expand production to meet increased demand
  • As macro conditions improve, large uptick in demand expected
jaguar land rover
Jaguar Land Rover
  • Acquired in 2008 to complement business
  • Brings strong brand presence and luxury line
  • Cutting edge design and manufacturing techniques
  • Focus on low emissions and clean technology
  • Bring to BRICs and developing nations
    • 43% growth in China and Russia
  • Fleet refresh will lower average model age to 2.5 years
luxury growth
Luxury Growth
  • Untapped potential in lower luxury
  • Vertical integration could help undercut competitors
luxury growth1
Luxury Growth
  • Significant expected growth in luxury segment
    • Lead especially through China
land rover evoque
Land Rover Evoque
  • New Land Rover model looks to be major hit
  • Already 20,000 pre-ordered, will help volume
balance sheet analysis
Balance Sheet Analysis
  • Cash and Cash Equivalents: $2.0Bn
    • YoY Change: +$600MM
    • Has increased cash position while maintaining debt levels
  • Current Ratio: 0.80
dcf summary
DCF Summary
  • EV/EBITDA Multiple Range: 7x – 8x
  • WACC: 9%

$19.16 – 21.18

  • Current Share Px: 16.26 (18% -30% Upside)
    • As of 9/21/2011
tata motors1
Tata Motors
  • Bollinger Bands
    • Volatility bands placed 2 standard deviations above and below an EMA
tata motors2
Tata Motors
  • Relative Strength Index (RSI)
    • Compares the magnitude of recent gains to recent losses
tata motors3
Tata Motors
  • Williams (WLPR)
    • Compares a stock's close to the high-low range over a14 days
tata motors4
Tata Motors
  • Moving Average Convergence Divergence (MACD)
    • Difference between 26 day EMA and 12 day EMA
    • Signal Line – 9 day EMA
tata motors5
Tata Motors
  • Technical Analysis
    • Thesis
      • MACD- Shows a significant movement back towards middle ground; upside limited to 5% before resistance
      • RSI-Middle of the road; neither hints at upside or downside
      • BOLL-Middle of the road; neither hints at upside or downside
      • WLPR- Indicates strong upwards momentum over past week; not a favorable entry point
    • Summary
      • Not the best entry point after the recent market movement, but upside remains, and chasing a bottom is unneccessary
proposal1
Proposal
  • Build $3,000 position
    • Currently less than 10% of portfolio in EM
  • Short-term Outlook < 1 Year
  • Revisit after 20% share price appreciation

Questions?