Tata Motors: Resuming Operations, Poised To Drive Higher

Summary

• Tata Motors is India's largest automotive company and is reopening for business.
• After a massive pullback of almost 90% from its high, the stock looks to be building momentum.
• India is set to begin phased reopening on June 8, and TTM has reopened all locations as of June 2.
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Some men succeed because they are destined to, but most men succeed because they are determined to. - Henry Ford

Tata Motors Limited (NYSE:TTM), for those who don't know, is one of the fastest-growing automotive companies in India and also the largest. The company owns iconic brands such as Jaguar and Land Rover and also offers compact passenger cars, SUVs, utility vehicles, and others to India's large addressable market and also worldwide. While India is still developing, it has massive potential with a population of over 1.3 billion people and is expected to be the largest in the world if trends persist. TTM has positioned itself uniquely by cornering 45% of the auto market in India and having some elite brands as part of its lineup to capture part of the global market. While the worldwide pandemic has, ultimately, hurt auto sales, there should be a rebound coming as consumers shift away from public transport. India is a unique country, and if even a portion of the population looks to drive more than before, there could be massive upside here.

The share price for a company with such excellent prospects isn't showing it over the last few years. The company is down over 85% off its high made in summer 2016. That should tell you how things have been going in the auto industry overall, but especially recently with the pandemic shutting down the country. If you're looking to buy a quality company near a low, this will not be going anywhere anytime soon and might fit the bill. Emerging markets have been a place that, if you can find the right value, you can do exceptionally well. TTM is a potential needle in a haystack here.

India was shut down particularly hard by the government in March, with the Government of India under Prime Minister Narendra Modi ordering a nationwide lockdown for 21 days. Locking down 1.3 billion people is no easy task. However, there are plenty of signs of economic recovery happening across the massive country now. Five states are leading the country back in that area, and India will begin a phased reopening on June 8 across the country's balance. This will be bullish for TTM as normal economic activity recovers. India was one of the fastest-growing nations before the lockdown and should be one of the faster countries to recover. Auto sales should improve alongside the economy.

Of course, the risks for the company are huge now. While Tata Motors dominate the Indian market, there are essentially three overall - with TTM, Maruti Suzuki (OTCPK:MRZUY), and Hyundai (OTCPK:HYMLF) dominating roughly 70% of the market overall. TTM's dominance will be challenged, especially with the pandemic putting pressure on their competitive moat. There are also massive players coming as competition, ranging from the global majors in Toyota (TM), Honda (HMC), Nissan (OTCPK:NSANF), Volkswagen (OTCPK:VWAGY), among others, to the US giants in General Motors (GM), Ford (F) who will not want to miss the opportunity. The Indian car market is seen as the next Chinese car market, and these giants will not want to miss out. A second significant risk is that the reopening of the economy does not go as planned, and there is another shutdown needed. TTM needs a thriving Indian economy and is more dependent on it than the other players, which could affect its overall position. Also, a shift in the global market to greener vehicles would cut into the margin ability of the company going forward. In a market like India, that might seem like a far way off as a developing nation. However, it is a possibility that consumers will change their attitudes in this ever-changing pandemic environment. With these in mind, given the pullback in the stock, the risk-reward looks are positioned to the reward side.

From a technical perspective, the stock is short-term negative hereafter just recently breaking out above its 50dma. There could be a pullback from this recent rally if it cannot hold those levels, and the 200dma is negatively sloped and well above current levels. However, if there is a catalyst and the stock can continue the small upward momentum it has gained since late March, there could be a breakout. The RSI does not look particularly overbought here, but it is at elevated levels of around 59, and the stock is trading right around resistance levels. It will take something significant to break out above these levels, but if it does, upside to the $9 200dma resistance is substantial.

While there are plenty of risks, the fundamentals of TTM look worth a position here, as this emerging market giant has potential that is unmatched by other carmakers. The Indian market is beyond massive, and a home-grown car company may stoke more national pride, especially as populism increases and out of country names lose luster. Tata Motors is challenged from a technician's short-term perspective, but the risk to reward looks relatively stable and is worth at least building part of your position. Buy the stock on weakness and play the longer-term game.

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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