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Tata Motors' EV bid is a play for future business with no serious impact on earnings

Equity Tips
Recently, Tata Motors (TTMT) bagged an order from Energy Efficiency Services (EESL) to deliver 350 electric vehicles (EV) out of the 500 to be delivered in Phase I. The other player to supply the remaining 150 vehicles is Mahindra & Mahindra (M&M), the pioneer in EVs in India.

TTMT and M&M will supply the vehicle at a price of Rs 10.16 Lakh exclusive of the Goods and Services Tax (GST). EESL plans to put the purchase order of remaining 9,500 vehicles after the delivery of Phase I vehicles and M&M has an opportunity to deliver a total of 4,000 vehicles and the remaining would be delivered by TTMT.

The market cheered the news with the stock price of Tata Motors surging. However, the order for TTMT might not be value-accretive in terms of financials. But this order gives a platform for the company to launch itself into the world of EVs, the future cars. Apart from that, the order would provide a good learning experience to the company.

Will the aggressive bid impact financials of Tata Motors?

Assuming that TTMT supplies a total of 6,000 vehicles at Rs 10.16 lakh, it will be able to garner Rs 609.6 crore of revenues, which is 0.2 percent and 1.2 percent of the consolidated and standalone FY17 revenues, respectively. Hence, from the perspective of earnings, the order does not move the needle at all at this stage.

While the contours of the deal are not known yet, even if the order turns out to be margin-dilutive, given the minuscule share of this order in the overall financials, it is unlikely to have any meaningful impact on financials.

We are keeping a close tab on the developments taking place in TTMT, especially in the domestic business. The company posted a very good set of sales figures for the month of September 2017, indicating that its turnaround strategy is showing early positive results.

As recommended in our earlier note, we continue to like the business on the back of the probable turnaround that is taking place in the domestic business.

Investment & trading in securities market is always subjected to market risks, past performance is not a guarantee of future performance.
CapitalStars Investment Adviser: SEBI Registration Number: INA000001647

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