Why would I pick an automobile manufacturer as my best pick when the sector itself appears to have hit a speed breaker in India’s currently potholed economy? It’s because the Tata Motors legend is one hell of a trip. It winds, coasts, struggles, dips and rises again in the manner of all great journeys. Investors have to ride Tata Motors with finesse and a light hand. The reasons for this faith follow.
Tata Motors is the largest commercial vehicle (CV) and third-largest passenger vehicle (PV) manufacturer in India. Its subsidiaries and associate companies extend their operations to the UK, South Korea, Thailand, Spain and South Africa. Among them is Jaguar Land Rover (JLR), the audacious business of the two iconic British brands acquired by the Tatas from Ford for $2.5 billion in FY09. It’s a matter of national pride that JLR has undergone a dramatic transformation under Tata Motors’ ownership, with a sharp increase in sales and record profits. So, though the domestic business is not exactly blooming right now, I have reason to believe the difficult times at Tata Motors are bottoming out. In fact, I expect even the Indian market will contribute meaningfully to the company’s profitability as the macroeconomic scenario improves in FY14. Here’s a quick recap while we wait for that to come about.
Tata Motors has, somewhat unexpectedly, become a play on the global luxury vehicle market with JLR contributing over half of the consolidated revenues and over 80% of FY12 profits. That’s because the worldwide luxury market has been relatively resilient despite the weakness in the global economic environment. What’s stopped things from going south is the strong demand from China, where JLR has expanded its network and launched the smallest Range Rover model, the Evoque — and FY13 year-to-date volumes are already up by 24%. I estimate JLR’s sales volume will keep up