What sensational results this Auto Giant has produced! Hats off to Ratan Tata.

If you want the numbers go to www.myiris.com, moneycontrol…..etc. here is just the philosophical analysis!

I have a couple of research reports -saying sell @ 170. No I do not want to name the research houses, but I know exactly what went wrong. Having done research in life it is easy to spot – herd mentality, peer pressure, not understanding operating leverage, not talking to the industry experts (in this case in Europe), and not being able to remove ones shoes.

1. Most junior analysts hear their bosses on television, or in office meetings and then ape them. If you are reading this, DO NOT DO IT. Your boss is there only because he has spent more time on the planet and in the organisation. You are as intelligent / smart / alert – perhaps better than your boss. Do not copy or ape. If you are inspired, be inspired. Do not copy. Some of the smartest sounding analysts have made monumental mistakes.  I cannot name them or their mistakes – it is a small and a cruel world.

2. Easier to be wrong and be with the crowd instead of being right and being alone – applies to all analysts except guys who put in their own money. It is lonely at the top. Ask Ratan Tata! People were taking his a… for JLR – what magic can you do which Ford could not do in 20 years? Man it takes guts – why blame a poor small analyst. Easy to Google some masala, and do a report. Peer pressure or laziness.

3. This is a big mathematical problem. In any company – have seen it happen in Indian Hotels, Ashok Leyland, Coromandel Fertilisers. Only up to a particular point do you have to worry about fixed costs. Let us say for Tata Motors this is 100,000 vehicles. After this point all the sales results in CONTRIBUTION. And that can be sensational. If raw material cost in a vehicle is 70%, then beyond this point the GROSS MARGINS BECOME THE NET MARGINS. This is easy to understand, but difficult to build in when the share is quoting at Rs. 170.

4. When the  Corus deal was done, I spoke to a very senior person in the industry. I realised the gap between the analyst’s level of understanding and the level of knowledge required to comment. I thought (foolishly) that freight was an important consideration in steel. It is not. The access to 40 high end markets in the world was far more important than the plants which made them. Suddenly when the whole thing fell into place – it was comforting holding on to the shares of both – Tata Motors and Tata Steel. Still at Rs. 800 I sold 100 shares of Tata Motors. Thank God my broker allowed me to sell only 100 out of the holding 🙂 Now the dividend of Rs. 15 per share looks nice in the bank account!

5. When most of my friends borrowed for their first house they borrowed Rs. 5-8 lakhs. Their fathers told them..’you know I borrowed Rs. 22,000 you are borrowing so much’. Then some of them became analysts. When they saw a debt of Rs. 19,000 crores they said ‘Too much debt’ and told the whole world. Ta Mo with a PAT of Rs. 2000 crores a quarter (Rs. 8000 crores a year) has about 2 years PROFITS as debt. It is like a guy with a Rs. 50 lakhs CTC having a Rs. 50 lakh debt. So analysts have to remove their shoes before they get into the shoes of Tata Motors.

One thing is certain. It is lonely at the top. I am sure Mr. Tata’s successor will not be able to take such brave calls. Hats off. This is not money earning money. It is guts earning money.

Related Articles:

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

  1. And Mr Subra – Hats off to you – to for such a wonderful ORIGINAL view .. (IN this age of blogs where all are just copy pasting and teaching the same old fund again and again)…

  2. Sir, TM DVR is available at 180 levels again (after a gap of 6 years), 2.8 Lakhs Crs of revenue, 10x revenues to the nearest competitor, low margins, missing cash flows, please comment whats ur view on TM DVR now? Thanks

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>