TTM

[Kublakhan]

Lots of publicity and buzz surrounding their new $2500 car, the Tata Nano.

I would like to hear David's opinion.

World's cheapest car goes on show
   
Tata Nano
The car is designed for family use in India

The unveiling
Tata Motors has unveiled the world's cheapest motor car at India's biggest car show in the capital, Delhi.

The vehicle, called the Tata Nano, will sell for 100,000 rupees or $2,500 (£1,277) and enable those in developing countries to move to four wheels.

The four-door five-seater car, which goes on sale later this year, has a 33bhp, 624cc, engine at the rear.

It has no air conditioning, no electric windows and no power steering, but two deluxe models will be on offer.


Tata will initially make about 250,000 Nanos and expects eventual annual demand of one million cars.

The price will be slightly more than the 100,000 once tax and other costs are taken into consideration.

The Nano release comes as India's domestic car market is predicted to soar in the coming years on the back of the country's fast-growing economy and increased consumer wealth.

'People's car'

Indian car sales are predicted to more than quadruple to $145bn by 2016.

Company chairman Ratan Tata said the launch of the Nano was a landmark in the history of transportation.

   
Tata Motors' engineers and designers gave their all for about four years to realise this goal
Ratan Tata, Tata Motors

He said the car was "a safe, affordable and all weather transport - a people's car, designed to meet all safety standards and emissions laws and accessible to all".

Environmental critics have said that the car will lead to mounting air and pollution problems on India's already clogged roads.

But Tata said the car had passed emission standards and would average about 50 miles to the gallon, or five litres per hundred kilometres.

The firm also said it would introduce a diesel version of the Nano at a later date.

'Family transport'

At the unveiling ceremony Mr Tata said: "I observed families riding on two-wheelers - the father driving the scooter, his young kid standing in front of him, his wife seated behind him holding a little baby.

   
TATA'S NANO
3.1m long, 1.5m wide, 1.6m high
Can seat four to five people
Meets European emission standards
Costs 100,000 rupees ($2,500)
Tata hopes to eventually export the car
Source: AFP

"It led me to wonder whether one could conceive of a safe, affordable, all-weather form of transport for such a family.

"Tata Motors' engineers and designers gave their all for about four years to realise this goal.

"Today, we indeed have a People's Car, which is affordable and yet built to meet safety requirements and emission norms, to be fuel efficient and low on emissions."

Ravi Vangala, of Hyderbad, India, said: "I... congratulate Tata for his dream, and I will definitely buy the Tata Nano car."

http://news.bbc.co.uk/2/hi/business/7180396.stm

[David Randolph]

Lots of publicity and buzz surrounding their new $2500 car, the Tata Nano.

I would like to hear David's opinion.

Hi Kublakhan, thanks for bringing TTM to the Watch List.

TTM's market cap is $5.84 B. It has 34,000 employees and the following is its business description:

«Tata Motors Limited manufactures commercial and passenger vehicles primarily in India. It offers passenger cars, multi-utility vehicles, and pick-ups; medium and heavy commercial vehicles, such as rigid trucks, tractor trailers, and tippers; intermediate, light, and small commercial trucks; buses; and defense related vehicles. The company, through its subsidiaries, also engages in the provision of engineering and automotive solutions; manufacture of construction equipment; automotive vehicle components manufacturing and supply chain activities; and provision of machine tools and factory automation solutions, as well as offers high-precision tooling, and plastic and electronic components for automotive and computer applications. In addition, it provides automotive retailing and services, as well as financing for the vehicles sold by the company. The company markets its products in Europe, Africa, the Middle East, south Asia, south east Asia, and Australia. Tata Motors was founded in 1945 as Tata Locomotive and Engineering Company Limited and changed its name to Tata Engineering and Locomotive Company Limited in 1960. Subsequently, it changed its name to Tata Motors Limited in 2003. Tata Motors is based in Mumbai, India. Tata Motors Limited is a part of Tata Group.»

Here's a chart with the stock price since the company became publicly traded in the US:



Range bound over the past couple of years.

The EPS CAGR for the past five years was 39%, which is impressive. For fiscal 2009 (ending March 09) analysts covering the stock expect EPS of $1.3, so Friday's close of $15.17 represents an 11.7 earnings multiple, which seems attractive, given the growth rate.

I'm not sure the market likes this "Nano" car idea Kublakhan. I say this because investors, especially when thinking about auto-makers, worry about profits and profit margins. I wonder if they'll produce the car at an healthy profit or at a loss over the short term?

Well, this is the first time I look at the company and there are analysts covering it full time, so let's see what they say:



Analysis prepared by Efraim Levy, CFA on February 13, 2008, when the stock traded at $ 18.28.

Highlights

- We think the rate of growth in the Indian vehicle market is tied to economic expansion and
interest rates in the region. In recent years, Tata has gained market share in its home market.
Longer term, we believe this trend will be difficult to maintain as foreign penetration of the Indian market increases.We expect Tata sales to rise 7% in FY 08 (Mar.), followed by a 15% gain in FY 09, driven by increased demand for commercial vehicles and passenger cars in India and growth in exports to international markets, partly offset by the impact of higher interest
rates on demand.

- Net margins should benefit from increased production and sales, and cost reduction efforts. However, we expect higher prices for steel, oilderived products and other raw materials to be
partly offsetting. We believe interest costs will increase, as interest rates in India rise.

- Our FY 08 and FY 09 earnings per ADS estimates are $1.22 and $1.48, respectively, assuming that average exchange rates remain at approximately $0.025 per INR through March 2009.

Investment Rationale/Risk

- We believe the company will benefit from the long-term uptrend we see in demand for commercial and passenger vehicles in India as well as growth in Tata's exports. However, changes in economic growth and the impact of rising competition could at times limit that growth.

- Risks to our recommendation and target price include foreign currency fluctuations. The company has significant foreign currency denominated debt that could be difficult to repay if the
Indian rupee depreciates, and, as a net exporter, a rising rupee could hurt demand for its
products. Also, there is a lower level of regulation and monitoring in the Indian securities markets than in the U.S. Holders of ADSs have fewer rights than local Indian shareholders. In
addition, increased competition could hurt market share and margins more than we estimate.

- Our 12-month target price of $21 for the ADSs is derived by applying a P/E of 14X to our FY 09
EPS estimate. On a P/E basis, relative to our average forecast for other non-U.S. auto manufacturers, Tata recently traded at a premium, but within its historical range.



CORPORATE OVERVIEW. India-based Tata Motors Ltd. is the largest member of the Tata Group of companies and has been manufacturing vehicles since 1954. Tata manufactures commercial vehicles ranging from less than 1 ton to 40 metric tons, as well as passenger cars and utility vehicles. The company believes that it is the leading commercial automotive vehicle manufacturer in India by revenue, and the second largest manufacturer of cars and utility vehicles in India, measured by unit volume sold.

During FY 07 (Mar.), Tata sold 580,280 vehicles, including 53,474 units internationally, up from 454,129 and 50,223, respectively, in FY 06.

Each ADS represents one Tata share.

MARKET PROFILE. Demand for automobiles in India has been increasing since 2002, driven by rising gross domestic product (GDP). The Indian automotive industry represents about 4% of India's GDP. Total industry sales were 2.1 million in FY 07, 1.71 million in FY 06, 1.58 million in FY 05, and 1.31 million in FY 04. Competition comes from Indian manufacturers as well as from international car companies. We expect foreign manufacturers to increase their penetration of the Indian market following the easing of certain import restrictions.

There was growth of 22.5% during FY 07 in total automotive vehicle sales in India, up from a 9% increase in FY 06. Tata's market share was 27.7% of all four-wheel vehicles sold in India in FY 07, up from 26.5% in FY 06. Regulations to reduce negative effects on the environment, improve vehicle safety, and enhance fuel economy have added costs to vehicles.

The Golden Quadrilateral (GQ) is part of the country's road development program, targeted to be completed by FY 15. The pace of growth of vehicle demand should be affected by the speed at which the GQ is completed.

The bus segment is growing rapidly in India, and it represents significant volume in the international markets and an opportunity for Tata to expand, in our view.

CORPORATE STRATEGY. The company's strategy is to use its existing strengths to improve quality and performance levels while taking advantage of its relatively low manufacturing costs versus competitors. It also plans to increase overseas sales through internal production and acquisitions. The company offers a broad product range that it can use to compete in different market segments. It also plans to introduce new products, including a low-cost car and new global cars, upgrades, and variations of existing vehicles.

According to the company, domestic Indian customers are increasingly interested in purchasing fully built buses. As a result, the company is switching from providing a truck-derived bus chassis to producing fully built bus platforms; in March 2005, it launched 19 bus models under the TATA Globus & Starbus brands. The company intends to build platforms similar to European ones and shorten development times.

The company is looking to make acquisitions to become a global player. It also plans to launch new vehicles in new markets such as South Africa and strengthen its presence in existing markets such as Turkey.

FINANCIAL TRENDS. The company has produced significant cash flow since FY 02, due to volume growth, cost reduction, and good management of working capital, in our view. Free cash flow increased from 392 million rupees in FY 02 to 17.9 billion rupees in FY 07. During that period, revenues grew at a compound annual growth rate (CAGR) of 29%, to about 275 billion rupees, while a loss of 3.4 billion rupees in FY 02 progressed to income of 19.1 billion rupees in FY 07. We see further improvements in all three metrics in FY 08 as sales and production rise.

Capital expenditures have been rising steadily, reaching about INR 24 billion in FY 07. The company expects aggregate capital spending of approximately INR 100 billion over the next three to four years.



• Tata digests rich diet of English takeaways
at FT.com (Tue, Apr 1)

• Tata Motors: Turning Japanese To Fund Jag
at Forbes.com (Wed, Apr 2)

• S&P cuts its rating for Tata Motors
at FT.com (Sun, Apr 6)

It appears that investors didn't enjoy TTM's purchase of Land Rover and Jaguar for $2.3 B, which is a lot of money for a $5.8 B to spend on an acquisition. So probably shares will be pressured over the short term.

I'll keep it on the Watch List and will cover the developments. It is an interesting company/stock, a nice play on the growth of the Indian economy which I expect to very strong over the long term.