Tata Motors DVR
                         Jan 16 2012                                                        Analyst Report
                                                                                          Tata Motors VR

                                                                CMP DVR shares                Recommendation
Tata Motors is a TATA Group subsidiary, with Tata Sons
holding about 35% of the company. Tata Motors is amongst                109.65                           Buy
India’s largest car manufacturers. It also owns UK based
Jaguar – Land Rover, which it bought from Ford in 2008. It     CMP Tata Motor shares          Recommendation
manufactures a wide range of heavy and light commercial
vehicles, ranging from the Tata Nano, the worlds cheapest               217.40                   Buy / Switch to
car to hi – end vehicles under their Jaguar and Land Rover                                          DVR shares
luxury brands.
                                                               Market Data Tata Motors
                                                                  BSE            NSE      BLOOMBERG           REUTERS

Investment Rationale                                            500570     TATAMOTORS         TTMT            TAMO.NS

JLR has been performing very well over the past few years       Face Value (INR)                     2
with impressive growth in sales and profits. Considering
                                                                Book Value (INR)                     63.05
that JLR contributes less than half of turnover, but over
80% of profits to Tata Motors, this augurs very well for the    52 -week range (INR)                 260.74/137.55
future performance of Tata Motors stock. Tata Motors
                                                                M cap (INR M)                        627876.9
domestic operations are profitable as well.
                                                                3-mnth Avg. Daily Vol. (Mn)          1.97
JLR is hiring staff, increasing investments in research and
development, as well as adding manufacturing capacities.        Shares Outstanding Equity (Mn)       634.61
They are planning a slew of new launches, with over 50
new models in the pipeline due till 2015. We expect JLR to     Shareholding Pattern – Tata Motors
drive profitability and growth for Tata Motors over the next    Promoters -                          35.04%
few years.
                                                                FII -                                24.14%

                                                                DII                                  14.77%
Valuation                                                       Other -                              26.05%

With a TTM EPS of Rs 27 per share, and dividend of Rs 4.1      Shareholding Pattern – Tata Motors DVR
per share, the DVR share is quoting at very attractive          Promoters -                          9.01%
valuations with a TTM P/E of 3.75x and a dividend yeild of
4%.                                                             FII -                                28.27%

                                                                DII -                                46.61%

                                                                Other -
                                                                Free Float (%)                       16.02%
                                                                                                     : 6.72%

                                                                Free Float (%)                       6.72%

January 2012                                                                                                   1
                                                                                        Tata Motors DVR
                         Jan 16 2012                                                      Analyst Report
                                                                                        Tata Motors VR

Tata Motors Differential Voting Rights (DVR) share

In 2008, Tata Motors issued a class of share called Tata Motors DVR shares. They issued 64.1 crore
shares, through a rights issue to raise funds for the JLR acquisition. The shares are identical to ordinary
shares of Tata Motors, except that they have 1/10th of voting rights compared to ordinary shares, and they
give an additional 5% dividend on face value, as compared to ordinary shares. In all other aspects they
are counted as ordinary shares. These DVRs’ listed on the stock exchanges in November 2008.

Please refer to Annexure A for more details on DVR shares and their history in India.

DVR Investment Rationale

Strong JLR Performance

JLR recently hired over 1500 new staff for its 3 UK plants, and plans to increase total headcount from
17,000 to 20,000 by 2013, including an additional 1,000 engineers. The company has earmarked an
annual investment of 1 billion pounds for the next 5 years towards product development and research and
is planning an investment of an additional 55 million pounds to set up an engine plant in the UK.

The company is registering excellent growth in developing markets, with China and Russia clocking 79%
and 60% growth respectively, in volumes in 2010-11. In the UK, JLR’s largest market volumes grew by
8%. China now is JLR’s second largest market after the UK, with the USA in third place. In response to
the strong demand coming from China, JLR is in process of identifying local partners to set up a
manufacturing plant there.

JLR’s new launches in 2011, the Jaguar XF and in particular the Land Rover Evoque have received rave
reviews and responses from customers and critics alike. The Evoque sold out worldwide for 2 quarters
after its launch in September 2011, and the XF is generating impressive sales.

Attractive Valuation:

With TTM EPS of RS 27 per share, and dividend of Rs 4.1 per DVR share (Rs 4 per ordinary share), the
DVR is available at very attractive valuations with a TTM P/E of 3.75 x and a dividend yield of 4%.

JLR posted an annual profit of 1.1 billion pounds in FY 2010-11, and analysts estimate FY12 profit for
JLR at 1.5 billion pounds. Assigning a P/E ratio of 10x to JLR, we arrive at a market cap of Rs 1, 20,000
crore for JLR alone, much higher than the M-Cap of Tata Motors, Rs 60,000 crore.

Assuming Tata Motors matches Bloomberg estimates of EPS Rs 27.8 per share for FY 11-12, the DVR is
available at just over 3x P/E, FY 11-12.

January 2012                                                                                             2
                                                                                        Tata Motors DVR
                         Jan 16 2012                                                      Analyst Report
                                                                                        Tata Motors VR

DVR discount to shares at historic high level: Current discount of DVR shares compared to ordinary
Tata Motors shares is approximately 50%, close to an all time high discount for the share. This discount is
well above the near 30% average that has prevailed since inception.

Globally, the prevailing discount ratio for similar securities ranges between 10-20%.

Performance of Tata Motors DVR Vs Tata Motors (Last Six Months)

     Tata Motors DVR vs.          Tata Motors

Performance of Tata Motors DVR versus Sensex & Tata Motors, Source ‐ Bloomberg (Green – Sensex, Red ‐Tata
Motors, Blue – Tata Motors DVR)

January 2012                                                                                             3
                                                                                         Tata Motors DVR
                         Jan 16 2012                                                       Analyst Report
                                                                                         Tata Motors VR

Sharp reduction in promoter holding: The institutional holding in the DVR has been on a steady rise
over last one year with the FII and DII holdings increased from 35% in Q4 FY10 to over 76% Q2 FY12.
Promoter holding has come down from 52.9% to 9% in the same period. This may be because promoters
prefer holding shares with full voting rights, thus they are diluting their holding of DVR shares. As the
promoters are likely to sell the balance DVR shares in the near future, we expect the supply pressure on
DVR’s to drastically reduce, and this should result in narrowing down of the discount on DVR.

Improvement in Float – With a reduction in promoter holding the DVR float has improved. Generally
DVR with higher float have lower discount, or even premium at times, compared to ordinary shares.

Companies in India with DVR:

Pantaloon DVR is identical in structure to Tata Motors. Gujarat NRE Coke does not offer any additional
dividend, and its voting rights are 1/100th of a regular equity share. However the discount on Tata Motors
is larger compared to the two stocks.

Company                Share Price    DVR Price     Discount

Pantaloon                     146.2           100         32%

Gujarat NRE Coke              19.75         13.15         33%

Tata Motors                   203.5        102.55         50%

Tata Motors has been performing admirably since recovering from the 2008 slowdown, and its future
prospects based on JLRs’ performance are looking positive. Tata Motors today is one of the key index
constituents, and among the first stocks that foreign investors subscribe to, to get exposure in India. With
improving investors sentiments for India we believe that Tata motors should see lot higher interest than
most other index stocks.

Also, since promoters hold less than 10% of the DVRs outstanding, it can be assumed that supply
pressure would considerably ease for DVRs in the near future. Hence we expect the discount between
the DVR and ordinary share to narrow in the near future.

Therefore for investors with a short and medium term view, we recommend investments in Tata Motors
DVR share. We also suggest existing Tata Motors shareholders to shift to Tata Motors DVR for higher
dividend and capital appreciation on back of expected narrowing of unwarranted steep discount on DVR,
and stellar performance by Tata Motors.

January 2012                                                                                              4
                                                                                          Tata Motors DVR
                          Jan 16 2012                                                       Analyst Report
                                                                                          Tata Motors VR

                                              ANNEXURE A

What is DVR?

DVR or “Dual Class”, shares render the holder differential rights with regards to voting rights, (can be
more or less voting right) compared to Ordinary shareholders of the company. DVRs can result in shares
that have superior/ inferior voting rights, offered in lieu of lower/ higher dividends and maybe offered at a
premium/ discount. Apart from the voting rights and dividend, DVR shares are like normal equity shares
in all aspects.

Normally, a company issues DVRs to raise more capital without diluting its ownership structure. It is
beneficial for the passive investors who are not interested in company management and look for higher
dividends and discounts.

In general, due to lack of investor awareness DVR securities tend to be relatively illiquid, and this
amplifies the impact of business cycle on DVR prices. Generally, during the business up-cycle the
discount on DVR price tends to reduce, while during the business down-cycle the discount increases.
Also, not all institutions are keen to participate in such issues due to lack of well-established price
discovery mechanism, and possibly due to restrictive self-imposed clauses, which prohibit investment in
such instruments. In extreme cases, DVR with superior voting rights can make management excessively
powerful and insulate managers from accountability.

Target Owners of DVR

DVR allows bringing in a class of investors who are only interested in the economic benefits i.e. dividends
and not in participating in the operations and management of a company. DVRs are generally subscribed
to by investors who do not intend to participate in the management and operation of a company by voting
in the resolutions put forth before them, while at the same time being interested in the economic benefits
attaching to the shares.

History of DVR in India

In India in 1991, an “Expert study on establishment of New Stock Exchange” under chairmanship of Mr.
M. J. Phewani proposed that dividend paying companies with proper track record of dividend payment
could issue shares without right to vote. The Issue of DVRs in India was allowed only since 2001.

Further due to instances of misuse of DVR with superior voting rights by the promoters and to prevent
further misuse of the same by the management looking to get more control on the company to the
deterrent of the minority stakeholders, on July 21, 2009 SEBI addressed a letter to all stock exchanges
which prohibited issue of DVRs with superior rights as to dividend or voting.

Post this ruling, new issue of the likes of Tata Motors or Pantaloons with higher dividends and lower
voting rights is not possible. However, as these issues by Tata Motors were made before the
amendments, SEBI has allowed issue of DVRs as bonus shares or rights issue to existing DVR holders of
Tata Motors. The above informal guidance to Tata Motors (issued in April 2010) also allowed it to issue
fresh DVRs with same terms by way of FPO issue, preferential allotment and QIPs, and issue of ESOPs
which are convertible into DVRs.

January 2012                                                                                               5
                                                                                                    Tata Motors DVR.
                                                                                                           Analyst Report


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