Tata Motors (TTM)

India is likely to see an increase in government spending on defense, intelligence and infrastructure in the months and years to come. The Tata Group of companies that manufacture everything from steel to military vehicles made by Tata Motors (TTM), will most likely benefit from an increase in defense spending, which is currently under 2% of annual GDP. However armored trucks and plans to develop a new platform for Land Rover to win defense orders are probably no more than a drop in Tata Motor's $9.126 billion annual revenue bucket.

It has been over three years since we first covered Tata Motors (TTM) and a lot has changed both with the world as we know it and with India's largest automobile company Tata Motors. Back then Tata Motors was a company with a strong balance sheet, double digit domestic and international sales, an exciting small car called the Nano under development and a rapidly growing economy to service. In contrast the company experienced a 30% decline in overall sales this November when compared to November 2007, a 43% decline in exports, downward revisions of 2008-2009 Indian GDP growth forecasts of 7.5% and a balance sheet that had been riddled with a $1 billion bridge loan to fund the $2.3 billion purchase of Jaguar and Land Rover from Ford Motor (F).

According to the last annual report of Tata Motors, the company spent 64% more on R&D in 2007-2008 when compared to the previous fiscal year. Instead of contributing to revenue and the bottom line, the Nano is putting additional economic strain on Tata Motors. The company had to recently close down its new factory in the eastern state of West Bengal due to protests by farmers and open another in the opposite end of the country in the state of Gujarat.

With initiatives ranging from a partnership with French car company MDI to create a car that runs on compressed air, a potential partnership with Chrysler to build an electric version of its popular mini-truck called the Ace, integration of its recent acquisitions and the much anticipated launch of the Nano, Tata Motors may be stretching its resources too thin. Both Moody's and Standard & Poor's recently downgraded Tata Motor's debt one notch and have a negative outlook on the company.

Worldwide demand for gas is being fueled by China and India, thus increasing the price of the commodity. Such high prices will affect the consumer's ability to pay for gas and in turn consider a purchase of a gas guzzling vehicle during these times.

Reports issued by management are often considerably different from what management is able to deliver. A clear-cut example is of the various dates the company has declared it would launch the sales of its Nano.While projections of productions and sales continue to be rosy, actual results are, at best, lagging. To put it another way, the Public Relations department seems to be doing a better job than the production and sales departments are able to do.

Asia in general is experiencing significant inflationary concerns. The increase in prices could lead to increase in costs and thus erode the company's profits.

Designed to target lower-mid income brackets, the Nano will sell for one lakh (100,000 rupees), or just over $2,500 – a price that undercuts Tata’s domestic rivals by about 30%. And it’s not just the car’s cheap price that’s creating such a domestic buzz: The Nano is also small enough to be considered practical in a nation that’s teeming with more than a billion people, and whose narrow, largely unpaved roads are overrun by mopeds, motor scooters and motorcycles.

Indeed, many analysts anticipated the Nano would revolutionize India in the same way Ford Motor Co.’s (F) Model T revolutionized America. Not only would it bring an affordable and practical car to the market; it would also generate jobs and create a steady income for a growing middle class. It was a good tale to tell; unfortunately, there’s been a twist to the intended plot.

Earlier this week, India’s Tata Group announced it would halt construction of a key Nano assembly plant in Singur, located in the state of West Bengal, so it could move production to another location. The reason, the company said, was that thousands of protestors were “violently obstructing” construction of the Nano factory. Now nano plant has shifted to Gujrat after assurance of greater tax benefits and facilities by the state Govt.