Tata Motors & The Nano: Why “That Little Car in India” Is Loaded With Big Profits
by Jeannette Di Louie, Investment U Research
Thursday, February 25, 2010
Open up your web browser and go to Google.
Punch in “that little car in India.”
What you’ll see is a long list of stories about the Nano – a car manufactured by Indian automaker, Tata Motors (NYSE: TTM). When the company first launched it back in 2008, it generated a significant buzz.
That buzz increased to a roar when the car hit the market last year. And it’s easy to see why…
- The ultra-compact car is just 10 feet long and five feet wide – perfect for city-dwellers who need to find tight street parking.
- Because Tata specifically designed the Nano with families in mind, it still has 20% more room than the smallest car on the market and four people can fit in comfortably.
- Despite its small size, the Nano still possesses a four-speed gearbox.
- It squeezes out 50 miles per gallon in the city and 70 mpg on the highway – a boon for both the environment and cash-conscious consumers.
- It retails in India for the equivalent of just $2,500.
American consumers will have to wait another few years before the Nano comes Stateside, as the company makes modifications to the construction and price.
But just because you can’t buy the car at the moment doesn’t means you can’t buy shares of Tata Motors…
Tata Motors’ Vision: Go Small
Like many other publicly traded companies, Tata Motors’ shares fell during 2008 and didn’t stop until the market hits its lows in March 2009.
But with strong support in the high teens/low twenties, investors pounced on the chance to buy back into the stock.
Tata shares hit a high of $18.03 on January 4. And while the stock has shed a few dollars since – a victim of the vacillating markets – it has the potential to turn back towards that high – and perhaps beyond. Here’s why…
Tata’s strategic vision right now is to “go small” – but with cars like its Nano and also it’s business goals.
Not only did the company specifically design the Nano to meet India’s transportation problems, it’s also pushing the bulk of its products at home and in other emerging markets, rather than the developed world.
That means it doesn’t have to worry too much about how the West seesaws back and forth between “stronger economic growth” and a “weaker than expected” performance.
It’s working, too. Third quarter results showed a 5% rise in vehicle sales over the previous quarter and a 67% jump from the corresponding quarter a year earlier. And earlier this month, Tata reported that total sales, including exports, grew 77% in January year-over-year.
CFO C. Ramakrishnan attributed that growth directly to “the underlying Indian economic performance, as well as the result of many other price actions that the company has undertaken in the last year or so.”
And that looks set to continue – particularly within India itself…
Tata Motors Has Home Court Advantage
While the financial media likes to focus most of its emerging market attention on China, India’s consumers may actually have more opportunity to spend their money on discretionary purchases than its Asian neighbors.
While both countries have burgeoning middle class populations, according to BusinessWeek…
“While the nation [India] badly needs infrastructure, its consumers are in a far better position to spend. India can now boast an overwhelmingly independent middle class about 300 million strong, versus China’s 100 million to 200 million, depending on the parameters. Profits from India’s businesses, large and small, go into Indian pockets rather than the state’s.”
Recent figures bear this out, too. Despite many poor roads, Indian car sales jumped by 61% in November and another 40% in December. And as of the last quarter, Tata had close to a 65% share of the commercial vehicle market.
It’s on the prowl for more growth, too, having recently bid $75.8 million for an Indian Army vehicle contract. So before the stock approaches its January high again, now is the time to consider an investment in Tata.
Good investing,
Jeannette Di Louie
- Tata Motors Puts the Pedal to the Metal in India’s Car Market
- Tata Motors Ltd. (NYSE: TTM) – King of the Road
- India’s Economic Ascent: Staying Strong Through the Financial Downturn
One Response to “Tata Motors & The Nano: Why “That Little Car in India” Is Loaded With Big Profits”
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February 26th, 2010 at 1:14 am
that was an informative article! Even I feel development of infrastructure is very important for India to grow and also a lot of initiatives is taken by the government to develop the nation. I was also looking up information on growth of Indian companies and came across this one http://bit.ly/bG2pVX
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