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Tata (TTM) is India’s largest automobile manufacturer and the world’s 5th largest medium and heavy commercial vehicle maker. They are #2 in medium to heavy bus manufacturing as well. They also provide financing for many of their buyers through their TML Financial Services unit. Tata acquired Jaguar and Land Rover from Ford in a (badly timed) $2.8 billion transaction that closed in June 2008.

I rarely write about ‘short’ ideas but this one seems to just jump off the page when you consider the fundamentals. Tata Motors closed at $13.78 last week and has jumped up to $14 /share in this morning’s rally (Nov. 23, 2009).

While Tata was able to post moderate profits during the economic boom years of 2005 – 2007, things have been pretty horrible ever since. Here are their per share numbers since 2004 as reported by Morningstar:

FY*
Sales
C/F
EPS
Div.
B/V
2005
12.57
1.15
0.78
Nil
3.57
2006
14.13
1.22
0.88
0.29
4.76
2007
19.96
1.49
1.01
0.28
5.50
2008
22.87
1.43
0.88
0.37
6.82
2009
32.35
d1.44
d2.99
0.35
1.55
2010**
34.30
d0.35
d0.96
0.13
0.60
* FYs end March 31. ** FY 2010 includes consensus estimates

Earnings predictability appears very low. Value Line estimates a further loss of $0.50 /share for FY 2011 while others see a smaller deficit of about $0.04 /share.

Their risky purchase of Land Rover and Jaguar (in early 2008) added more debt to an already levered balance sheet and it will likely continue to be a drag on corporate results.

Book value has been virtually wiped out since 2008’s peak. The dividend has been slashed and will probably need to be eliminated. Total debt exceeds equity and cash flow has been negative in both 2008 and 2009.

Despite all these negatives TTM shares have risen from their March lows near $3.10 to about $14. They have risk from both the manufacturing side and their financing arm.

Unless you’re a real believer in a quick, world-wide economic rebound TTM looks like a good candidate for outright shorting or through the purchase of puts or the sale of naked calls (for those who are comfortable with this riskier way to play).

Disclosure: Author went short TTM this morning.

Source: Tata Motors: License to Dive