The Tata empire has changed dramatically since Ratan Tata took over from his uncle J.R.D. Tata in 1991 -- coincidentally the same year that the Indian government began moving away from its rule by regulation toward economic liberalization. Before 1991, Tata Group and its holding company Tata Sons were said to be like many of the empires of old Asia -- weakly centralized, unable to control its satraps and begums and rajahs, full of formal pomp but empty of power. The Tata Sons holding company and the various family philanthropic trusts had diluted their holdings in many of the companies.
Under Ratan Tata, the center began to take hold. He moved Tata Group out of sectors where it was not competitive, such as textiles and cement, and invested more family capital in sectors that he thought held more promise.
Remarkably, considering the state of overcapacity in the world automobile industry, Tata thought and thinks autos to be one such sector. Where Westerners see a stagnant, legacy industry cursed by overcapacity, he sees it, from an Indian perspective, as a growth industry.
The company that is now Tata Motors made trucks, buses and construction equipment, and it still has a 60% share of India's commercial-vehicle market. But under new marching orders from Ratan Tata, the motor company introduced its first India-designed car in 1997. After some early stumbles, its Indica small car and mid-size Indigo each accounts for about a quarter of their market segments, for a 16% total share of the Indian car market. The Indian car market grew 17% last year, and Tata Motors' volume grew 27%.
Tata Motors (TTM), with a market value of $3.5 billion, is by far the biggest of the Tata companies accessible to American individuals; its American depositary receipts have been listed on the Big Board since September. It reported nearly $4 billion of revenue for the fiscal year ended in March, up 32% from the previous years, and earnings of $283 million, or 79 cents a share, up 41% in dollar terms. The consensus estimate for 2006 is 90 cents a share. The ADRs have been trading at a little below 10, in the middle of a trading range between 12.25 and 8.65 since the listing.
Tata Motors soon will incorporate Tata Finance as a wholly owned subsidiary, and the company says it intends to finance up to 40% of its sales within a few years, up from a current 18%. The company noticed what happened in the U.S. and other countries when captive credit companies made it possible for every car dealer to offer financing with small money down and affordable monthly payments.
Tata Motors is still recovering from an ill-fated partnership with the now-bankrupt Rover Group in Britain, and it has warned of trouble ahead -- increasing competition and a decline in the commercial vehicle sector, and of course the effect of higher fuel prices. Nonetheless, the company plans to make good on a $1.35 billion five-year capital-expenditure program that started in April 2004. That includes the launch of a basic $2,000 car, which, if Tata succeeds, could be the Model-T Ford of the 21st-century developing world. But cars are still cars.
[From Barron's Online; India's Nimble Elephant, by Thomas Donlan; paid subscription required]