Tata Motors: A Solid Choice In The Indian Market

Tata Motors (TTM) is India's largest auto manufacturer. They notched revenues of 5.5 billion USD in '05-'06 and their sales for the last quarter increased 30% compared to last year. Compare this to sales growth of 8.03% and 15.92% for their industry (Auto and Truck Manufacturers) and the S&P, respectively. Their domestic and international sales growth has had substantial increases in most categories. The two stand out categories for sales declines have been in domestic sales for the entry level mid-size category and in their international passenger vehicle sales. The international sales decline isn't entirely surprising though, as in the previous year they found solid sales growth in neighboring countries but seemingly ran into a wall this year as the international passenger car market is very saturated.

That brings us to Tata's future sales prospects. It's likely that their international passenger vehicle sales will remain at a low level or even take a slight dip. But the main force behind their growth potential lies in the Indian market. There is tremendous potential here as more and more Indians become financially secure in the growing economy. The Bombay Sensex (the Dow Jones of India) has risen over 40% this year and Indian businesses continue to flourish. This means the market for Tata's economical, entry level cars will continue to grow and benefit the country's largest automaker. The company has been named one of India's top ten recruiters and it's safe to say that they will hold this position as India's working force grows.

Recently, Tata signed deals with both Fiat motors and Thonburi Automotive. Even though Fiat is a struggling brand, Tata's will gain cost-cutting advantages from joint development projects. The Thonburi deal will provide an outlet for Tata to manufacture and distribute cars in Thailand. This will bolster Tata's international commercial vehicle sales, as Thonburi has a strong truck development presence in Thailand.

In conclusion, let's look at the Indian market, the stock and its prospects. The Indian market is very volatile and has the potential for sharp swings each day. Right now, it is currently sitting at 13,340 and I believe it's a bit overbought. Look for the Sensex to drop down some in the next week or so. As far as Tata's stock, it finished up at around $19.04 today, down 2.2%. I believe this is a excellent opportunity to find a benchmark company that has strong growth rates, is expanding in joint ventures and is in a market with great potential. The stock has a P/E multiple of 17.33, which shows that it's trading at reasonable level and hasn't been completely overbought, as many emerging market stocks can be. In the next week or so, keep an eye out for parallel performance in the Sensex.

TTM 1-yr chart

Disclosure: Author has no position in TTM.

Comments

[r deshmukh:]

Please correct the sales figure for the quarter. It should 5.5 Billion dollars, instead of 5.5 million dollars

2006 Dec 21 09:12 AM

[ganesh nayak:]

tata motors is a high beta stock ...and more of a manufacturing type than a brand that command premium ...we have seen company making loss in past ...and has fixed cost ...growth is seen with gdp but no significant rise in realisation as net profit ...safe pe for this stock is 10-12 and 20-25 on higher side ...good buy at 650 ...or lower ...

2006 Dec 21 10:26 PM