Tata Motors (TTM) is India�s dominant producer of commercial vehicles and controls 60 percent of the market.
The company is also a leading manufacturer of passenger cars in India and owns the Jaguar Land Rover brand of luxury cars and sport utility vehicles.
Although car sales in India have declined for months, they have recently started to turn around, increasing by 8 percent year-over-year in November, for the same month Tata Motors enjoyed a 41 percent growth in sales volumes.
The company sold 76,823 total units, of which its low-cost Nano passenger car accounted for 6,400 units.
The Nano, which was marketed as the world�s smallest and most affordable car, was greeted with great fanfare during its launch. The company spent about US $600 million to develop and manufacture the product but the returns on this investment have disappointed.
Tata Motors� Jaguar Land Rover division has meanwhile posted strong growth. Tata Motors acquired JLR from Ford in 2008 for about USD2.3 billion.
Although Tata Motors was criticized at the time for overpaying, Jaguar Land Rover has proved to be a good acquisition, as the company was coming out with new models that were received well by consumers.
Tata Motors also benefited from a recovery in emerging markets that began in 2008, and a strong 2009-10.
As a result, JLR now accounts for about 55 percent of Tata Motors� revenues and more than 60 percent of earnings before interest, tax, depreciation and amortization (EBITDA).
Currently Europe accounts for 42 percent of JLR�s sales volumes, the US for 22 percent and China about 11 percent of sales by volume.
China�s contribution to sales should increase to about 15 percent in a few years, which should offset expected declines in Europe and the US.� China currently contributes about 17 percent to JLR�s revenues, up from just 5 percent in 2009.
Profit margins are higher in China than they are in Europe or the US because there are fewer buyer incentives for mainland consumers.
Tata Motors� Indian business currently contributes about 40 percent to revenues and 28 percent to the company�s EBITDA.
Light commercial vehicles are Tata Motors� most profitable business line, and until recently the company had a near monopoly in small commercial vehicles. The company�s passenger cars division (21 percent of revenues) has traditionally been a drag on profits.
Although Tata Motors is the third-largest passenger-vehicle manufacturer in India, the division only contributes between 5 percent and 6 percent to the bottom line. �
Tata Motors� stock currently trades at levels more than 50 percent off its high at the end of 2010.
Although valuations are supportive, they�re not yet at rock bottom. Investors should purchase shares of Tata Motors at current levels, while recognizing that this is a high-growth, high-beta stock.
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