By AltG Research On Behalf Of Poornima Vardhan & Taponeel Mukherjee
Tata Motors: Balance Sheets Matter, As Much As The Income Statement!
The recent decision by Tata Motor to split up their Passenger vehicles and Commercial Vehicles business brings the focus back on corporate value creation by a focus on the Balance Sheet versus a simple focus on the Income Statement and consequent margins.
Differential CAPEX requirements, growth rates, depreciation schedules, asset turnovers and leverage levels create different businesses. A steady state growth business is valued significantly differently from a high-growth once precisely because the previously mentioned factors differ.
Indian businesses structurally have a much higher focus on the Income Statement and have what are “Lazy Balance Sheets”. There is significant value creation to be done via utilising Balance Sheets better to drive value in the Income Statement leading to high Return on Invested Capital.
Disclaimer: In the article "Will TATA Motors Demerger Unlock Massive Value? The answer lies in the Balance Sheet" above - Any views, comments or communication (above or in the past) should not be construed to be investment advice by Alternative Growth (hereafter referred to as “AltG”) in any form whatsoever. AltG does not make an offer to sell or solicit to buy any securities.