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Tata Motors: Ready to Invest in Select Indian Stocks

by: Asif Suria March 11, 2008 | about stocks: EPI / TTM    

Asif Suria

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A lot has changed at Tata Motors (TTM) since I wrote about it more than two years ago in the December 2005 edition of SINLetter. The company unveiled its much anticipated small car called the Tata Nano, introduced a new line of armoured vehicles, struck a deal with Boeing to make parts for the 787 aircraft and is said to be very close to acquiring Jaguar and Land Rover from Ford Motor (F).

Despite getting almost 50 miles per gallon, the Tata Nano has irked environmentalists both in India and outside the country. Maybe one day we will see an "air powered" Nano or a hybrid Nano thanks to Tata's $30 million investment in Air Car developer MDI and its joint effort with Chrysler to develop an electric version of its Ace mini truck.

On the financial front, the company increased both revenue and earnings as well as increased its dividend (current yield is 2.1%). Unfortunately the company has also taken on a lot of debt to fuel its growth and operating margins have declined. Exports have also slowed and the company faces tough competition at home from Mahindra and Mahindra. Hopefully the launch of the Nano in fall and the acquisition of Jaguar and Land Rover will help Tata Motors address competition in the domestic market while improving its international presence and brand name.

As you can see from the historical trades section, I sold Tata Motors from the SINLetter model portfolio when it was trading at $19.7 on 10/31/2007 for a gain of 64.99%. The stock has declined 11% since then and with a P/E of 12.43, a P/S of 0.77 and PEG of just 0.76, the company looks cheap. The Indian market has been highly volatile lately and, as I write this, the BSE Sensex has dropped another 908 points or 5.17% but Tata Motors appears to be holding its own with just a 1.6% drop. This may have to do with the recently released Union budget that did not please the capital markets but is perceived to be beneficial to automobile companies that make small cars like Tata Motors.

The release of the new WisdomTree India ETF (EPI) provides investors the ability to hedge their risk by shorting the ETF and going long a select group of Indian ADRs like Tata Motors, Wipro (WIT) and Sterlite Industries (SLT), which was featured in the India: Emerging Market Opportunity section of the January 2008 investment newsletter. When I wrote the January newsletter, I felt that the Indian market was overvalued and highly speculative but after a more than 4,000 point or 20% drop since early January, I am no longer comfortable shorting the Indian market and am ready to initiate long positions in high quality companies like Tata Motors.

Disclosure: I continue to hold the position I initiated in Tata Motors in December 2005.

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This article has 2 comments:

  •  
    Mar 11 11:26 AM
    TTM is a good company and an excellent long term hold, and I should have held onto my SLT @16... *sigh*
    Reply
  •  
    Mar 13 03:10 PM
    I think TTM is a brilliant 25 year investment. How can it not go up 40 or 50 times over the next 25 or 30 years? It is well managed and they have a product in great demand in India. If ever there was a buy and hold Indian security this may very well be it. Quite impressive to say the least.
    Reply
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