Tata Motors (TTM)

Tata is a formidable competitor at the bottom end of the market, in India and other emerging markets, but with its new marquee brands and strong manufacturing capabilities it is likely to make substantial inroads at the top end also.

The automobile capitals of the world in 2050 will be India and China.

East Asia will be rich by then - with expensive labor. Some of India and China will be rich, too, but both those countries have so many people and such a broad range of incomes that there will still be plenty of people with just enough education to work on a production line - even a highly automated one - as well as huge numbers of automobile consumers, both rich and middle-income.

The Jaguar unit of Ford was not profitable and when Tata Motors decided to acquire Jaguar and Land Rover from Ford, there were concerns about the profitability of the combined unit. Some media reports also suggested that the unit posted a loss of $383 million for the Jan 1, 2008 to June 1, 2008 period. According to this September press release by Tata Motors, Jaguar and Land Rover together delivered earnings before interest and taxes of $688 million in the first six months of 2008. Not only did Tata Motors acquire the two units for a fraction of what Ford paid for them, Ford also funded $600 million in retirement benefits as part of the deal. The redesigned visually stunning Jaguar XF helped push up Jaguar sales by 17% year-over-year in the July to September period.

A leading automotive manufacturing company with low cost operations and decent operating margins is available at a deep discount due to exaggerated fears in the market. The recent JLR (Jaguar Land Rover) aquisition is free of debt and should add handsomely to the company's bottom line.

Oil is now well below the $100 mark and with the commodity prices too falling in toe, automotive companies can probably start making some decent profits. The only two factors that might still prove to be hindrances are rising interest rates and general economic slowdown, which might curtail the demand from buyers.

Tata is a formidable competitor at the bottom end of the market, in India and other emerging markets, but with its new marquee brands and strong manufacturing capabilities it is likely to make substantial inroads at the top end also.

The automobile capitals of the world in 2050 will be India and China.

East Asia will be rich by then - with expensive labor. Some of India and China will be rich, too, but both those countries have so many people and such a broad range of incomes that there will still be plenty of people with just enough education to work on a production line - even a highly automated one - as well as huge numbers of automobile consumers, both rich and middle-income.

Tata has 17% of the Indian automobile market, the second largest domestic manufacturer, and 60% of the domestic commercial vehicle market. It also has a new product in development that may revolutionize the world’s automobile business - a car 40% cheaper than any other car on the market, the Tata Nano, showcased at the Delhi auto show in January and expected to be available later in 2008.

The Nano has an 800cc engine producing 33 horsepower and a top speed of 50mph. It will be sold in India and in a number of other emerging markets, including Africa. At an announced sale price of $2,500 it is the cheapest automobile in the world by a substantial margin. Tata plans an initial production capacity of 250,000 of its new automobiles, but that may prove too low to meet demand. After all, if your product is 40% cheaper than its competitors, many people who thought they couldn’t afford a car will now be able to buy a Nano.

At the top end of the market, Tata has bought Jaguar and Land Rover for $2.3 billion, less than half the combined $5.2 billion Ford Motor Co. (F) paid for the two brands in 1989 and 2000. In the long run, Tata should be able to save substantially on manufacturing costs, since it has now scaled up production in India to the level needed to be a truly global manufacturer. What is more, the emergence of a new wealthy class in India, which remains strongly Anglophile due to traditional links, should enable Tata to tap a major new market for the traditionally British Jaguar and Land Rover brands domestically, providing it with a solid base of domestic sales that should weather any global downturn.

Very low P/E could be doubled

The company is India's top auto manufacturer in terms of revenue. Will roll-out $2500 car next year, which will be blockbuster product which will redefine industry. Being a part of TATA group which also owns TATA Steel will help the company to hedge against steel prices.