Best Tata Stock: Tata Motors vs Titan

The Indian consumer is moving towards increased consumption of premium products across categories.

Personal care, home equipment, personal gadgets, automobiles, travel spends as well as discretionary product industries are seeing rising trend towards premiumisation.

After covid, the rise of luxury spending has taken everyone by surprise. Demand has outpaced supply.

While FMCG companies are fretting over inflation and slowdown in the growth, the 'premiumisation' and luxury theme is gliding well on lubricated wheels.

With a favourable demographic dividend and aspiring millennials, luxury and premiumisation are likely to be structural growth trends.

In this article, we compare the two Tata stocks that stand to benefit out of this trend.

The comparison stands on the basis of business operations, financial performance, and future growth prospects.

Business Overview

Tata Motors is a leading global automobile manufacturer. The company offers a wide and diverse portfolio of cars, sports utility vehicles, trucks, buses, and defence vehicles to the world.

Tata Motors derives 67% of revenues from Jaguar Land Rover indicating a strong demand for its premium products.

The company is also focussing strongly on electric vehicles by addressing barriers to EV adoption. This includes improving charging infrastructure and addressing total cost of ownership concerns.

Titan is among India's most respected lifestyle companies. It has established leadership in watches, jewellery, and eyewear categories led by its trusted brands and differentiated customer experience.

Titan derives 90% of its sales from the jewellery segment with a 7% market share. Watches and wearables contribute 7% of total revenues with the balance coming in from eyecare division.

The company is looking to expand its presence in the jewellery segment from 265 towns to 300 towns in the next couple of years.

Tata Motors vs Titan Business Verticals

	Tata Motors	Titan
Key Business Verticals	Passenger Vehicals	Jewellery
	Trucks	Watches and Wearables
	Buses	Eyewear
	Sports Utility Vehicals

Source: Equitymaster

Revenue Growth (CAGR)

In the last five years (2020-2024), revenue of Tata Motors and Titan grew at a CAGR of 10.9% and 19.4% respectively.

Though Titan has a higher CAGR, Tata Motors revenue is 8.5 times that of Titan and therefore absolute sales growth CAGR may not be the best parameter to make investment decision.

Tata Motors revenue growth was aided by strong performance in the Jaguar segment, followed by sustained growth in the commercial vehicles and electric vehicles volumes.

As for Titan, all of its segments contributed to sales growth from jewellery to consumer businesses.

Tata Motors vs Titan Revenue Growth (2000-2024)

	2019-2000	2000-2021	2021-2022	2022-2023	2023-2024
Revenue (In m)
Tata Motors	26,10,680	24,97,950	27,84,540	34,59,670	43,79,280
Titan	2,10,520	2,16,440	2,87,990	4,05,750	5,10,840
Revenue Growth %
Tata Motors	-13.5%	-4.3%	11.5%	24.2%	26.6%
Titan	6.4%	2.8%	33.1%	40.9%	25.9%

Source: Equitymaster

Margin Trajectory

Both Tata Motors and Titan have moderate operating profit margins as there is lot of competition with their respective industry peers.

Tata Motors vs Titan Profit Margins (200-2024)

	2019-2000	2000-2021	2021-2022	2022-2023	2023-2024
Operating Profit Margin %
Tata Motors	8.0%	14.0%	10.0%	10.6%	14.0%
Titan	12.5%	8.8%	12.4%	12.8%	10.0%
Net Profit Margin %
Tata Motors	-4.2%	-5.2%	-4.0%	0.7%	7.3%
Titan	7.1%	4.5%	7.6%	8.1%	6.8%

Source: Equitymaster

The five-year average operating profit margin (OPM) for both Tata Motors and Titan stands at 11.3%.

EBITDA margins for Tata Motors have been on an improving trend and the company clocked one of the highest ever margins at 14% in FY24.

As for Titan, EBITDA margins have been subdued in FY24 due to stiff competition and rising gold prices affecting raw material cost.

Capital Expenditure Trends

Operating in the consumer industry, it becomes a necessity to show case and advertise your products to the masses.

Also, Tata Motors and Titan are capex heavy businesses as they are engaged in manufacturing activity. To understand whether the management of a company is positive on growth outlook, it is important to track the capital expenditure metrics.

Higher the capital expenditure as a percentage of sales, higher is the growth potential for the company as management feels that demand can outpace supply and they need to add capacities.

Tata Motors vs Titan Capex as a % Sales (2020-2024)

	2019-2000	2000-2021	2021-2022	2022-2023	2023-2024
Tata Motors	11.3%	8%	5.4%	5.5%	7.1%
Titan	1.6%	0.6%	0.8%	1.0%	1.3%

Source: Equitymaster

As we can see in the table above, capex spends as a percentage of sales have moved up for both Tata Motors and Titan in FY24 as they plan to expand their business. This shows management's confidence in the business growth going ahead.

Return on Capital Employed

Return on capital employed measures how efficiently the company allocates its equity capital.

The average ROCE for Tata Motors and Titan in the last five years stands at 5.1% and 29.5%, respectively. Titan has been more effective in terms of generating returns for its shareholders than Tata Motors.

Tata Motors vs Titan Return on Capital Employed (2020-2024)

	2019-2000	2000-2021	2021-2022	2022-2023	2023-2024
Tata Motors	-1.9%	-1.3%	1.2%	7.5%	20.1%
Titan	25.6%	27.5%	29.4%	32.3%	32.5%

Source: Equitymaster

Valuations

The Price to Earnings ratio is an appropriate valuation metric to determine whether the company's share price is overvalued or undervalued.

However please note that both Tata Motors and Titan operate in different industry segments and therefore seeing only PE ratio might not be the best indicator to make an investment decision.

It indicates how much an investor is willing to pay for one rupee of earnings. A high PE ratio indicates the shares are trading at a premium.

The PE of Tata Motors stood at 11.1, for the financial year 2024. For the last five years, the average PE cannot be calculated as company has made losses in three out of the five years.

For Titan, the PE ratio stood at 87.2. The five-year average is 91.5.

Future Prospects

Tata Motors' management has guided for a cautiously optimistic outlook going ahead for the domestic market. However, they expect premium luxury demand to continue to be resilient.

The company is focussed on driving higher penetration of EV and CNG vehicles. Challenges for growth include moderating industry growth and temporary demand dampening factors.

As for Titan, for FY25 they have for aggressive growth by opening stores in new towns and existing catchments.

The company has expansion plans for Tanishq and Caratlane with priority on improving same store sales growth. Titan has also received positive response on international business expansion.

Titan is also interested in expanding its operations for luxury markets.

Tata Motors or Titan - Which Tata Group Stock is Better?

Since both the companies operate in different industries, there will be not one clear answer as to which stock is better than the other. However, below are certain parameters which you must keep in mind before making any investment decision.

In terms of revenue and profit growth, it seems that Titan is doing a better job as compared to Tata Motors. However, we must note that Tata Motors is operating at 8.5 times higher revenue base as compared to Titan.

Return ratios are also favourable for Titan as compared to Tata Motors. However, Tata Motors has been showing promise with consistent improvement in its profitability and return ratios.

In terms of valuations, Titan looks richly priced against Tata Motors and any failure on the execution front by Titan may lead to a PE derating.

Fundamentals and valuations play an important role in deciding which company is suitable for investment. So, take a close look at these parameters when choosing a stock to invest.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...