First, just consider the sheer size of the company. Its FY04 sales were almost 4 times that of Ashok Leyland, and its net profit was 4.5 times more.
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What's more, the Tatas seemed to be a leaner organisation -- it's balance sheet size was only 3.2 times more than that of Ashok Leyland.
As a result, Tata Motors' net return on investment (net profit/total assets), at 17.1 per cent in FY04 was far superior to Ashok Leyland's 11.9 per cent net return.
This is both because of better profitability and superior asset turnover. Total asset turnover (sales/total assets) for Tata Motors was 2.46 times, compared with 1.99 times in the case of Ashok Leyland.
Also, the former's net margin stood at 6.92 per cent in FY04, higher than Ashok Leyland's 5.98 per cent. (All earnings-based calculations exclude any exceptional expense/income).
It is no surprise then that the markets value Tata Motors at almost 13 times the estimated FY05 earnings, while Ashok Leyland lags far behind with a valuation of a little over 9 times FY05 earnings.
There are other reasons for the difference in valuation. First, unlike Ashok Leyland, Tata Motors has diversified into passenger vehicles.
This partly helps the company in hedging the risk in the commercial vehicles sector, which is cyclical in nature. Besides, even in the commercial vehicles segment, Tata Motors is better placed, courtesy its wider product portfolio.
What's more, despite its higher base, its commercial vehicles sales have grown at a faster rate. Between FY01 and FY04, Tata Motors' commercial vehicles sales grew at a compounded annual growth rate of 24.4 per cent, compared with just 14.4 per cent for Ashok Leyland.
But the difference in size makes any comparison between Tata Motors and Ashok Leyland a problem.
So, let's look at Maruti's financials, which are comparable at least in terms of size of operations. For instance, Tata Motors' sales are 1.4 times that of Maruti, and its net profit is 1.5 times higher.
Maruti does better than Ashok Leyland, but still falls short of Tata Motors on most parameters. Its net return on investment was 14.6 per cent, compared with 17.1 per cent for the Tata Motors.
Again, Tata Motors scored higher on both profitability and asset turnover. Its free cash flow as a share of sales was almost double that of Maruti (9.6 per cent).
In short, based on financial parameters, Tata Motors does rule the roost in the four-wheeler space.
