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Is Tata Motors the New GM?

Companies / US Auto's Jun 13, 2012 - 07:00 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleG.S. Early writes: As far as prestigious SUVs go, the Land Rover badge has been a mainstay in the road-less hinterlands for decades.

Yet it has taken years for someone to actually get the formula right. BMW tried. Then Ford.

But neither one of them could quite get it.


Oddly enough the company to finally pull it off is headquartered in the former British colony of India.

With its Range Rover Evoque, Tata Motors took the top prize as the Motor Trend SUV of the Year for 2012.

According to Motor Trend, "the Evoque hits all of the marks."

So what exactly is Tata Motors? It may not be as familiar to you as General Motors (NYSE: GM), but someday it will be.

A fast growing newcomer, Tata Motors (NYSE: TTM) is becoming a global force in the auto, defense and commercial vehicle sectors.

Now it certainly doesn't hurt that the local India market has a population approaching 1 billion people and that as these folks continue to move up the economic ladder they will be able to buy cars in greater quantities.

That's a bonus for certain. But it's not the entire story.

The truth is Tata is a leading builder of mass transportation vehicles (busses) in India as well as Spain, Brazil and South Korea.

Simply put, Tata is now a significant global player.

Tata Motors: Building a World Class Brand
Today, Tata Motors is selling into all emerging markets with a variety of models to meet every hopeful driver's pocketbook. In fact, 19% of its Jaguar/Land Rover (JLR) sales came from the China region.

From the Nano, dubbed "the world's cheapest car" at around $2500, to the new luxurious Range Rover, Tata has a car or SUV for every price point around the globe.

One key to the company's success has been its ability to remain nimble as it has grown into a company with over $27 billion sales along with a $68 billion market cap.

For example, when Tata launched the Nano in 2009, it was sold as an affordable family car for the Indian market. Yet while Nano sales were solid, there were issues with the original model that were hampering its broad adoption.

To Tata's credit, they revamped the car and quickly improved the build quality. The result is that Nano sales have now begun to grow steadily quarter after quarter.

It's this kind of responsiveness from a major auto firm that has helped move Tata into the ranks of the world class auto manufacturers.

In fact, compared to the current run Tata is on, the comeback of the American automakers has been paltry by comparison.

What's more Tata continues to grow its sales in the emerging markets, while the U.S. car builders are still trying to develop some traction for their products.

As for the stock, it has bounced around recently, but it's been in a long-term uptrend for the last three years.

The Tata Motors Story
Tata's roots go back to 1945 when it was a key player in building India's military vehicles. Even today, it remains an important player in the defense sector.

This key relationship has created a solid revenue base since India prefers to develop its own defense systems instead of relying on outside contractors. In the long run that's good for Tata since India's economic and military powers promise to keep growing.

But again, Tata is truly becoming an international brand.

Currently Tata Motors has operations in the UK, South Korea, Thailand, Spain and South Africa. What's more, timely acquisitions have helped to open up new international markets.

For instance, Tata acquired the Daewoo Commercial Vehicles Company, South Korea's second largest truck maker, in 2004. Today two-thirds of heavy commercial vehicle exports out of South Korea are from Tata Daewoo.

Other timely Tata acquisitions/deals include:

•A top Spanish bus and coach manufacturer, Hispano Carrocera, in 2009.
•A joint venture with the Brazil-based bus maker Marcopolo in 2006.
•And a joint venture with Thonburi Automotive Assembly Plant Company of Thailand to manufacture and market Tata's Xenon diesel pickup trucks.

So with Tata you get a major player in India, China, South Korea, Brazil, Europe and Thailand. And it's been around for almost 70 years.

That offers investors quite a combination for a great long-term, total return play. In this case, Tata is more than a just a bet on global growth. Like any world-class industrial company, Tata also kicks off a nice little dividend to keep shareholders happy through down cycles.

Tata's dividend is now 2%, which is below the average dividend yield for the S&P 500 but offers more growth than many of its S&P counterparts. And it's certainly better than buying Treasuries.

All things considered, Tata Motors is a great long-term buy up to $25 a share.

Source :http://moneymorning.com/2012/06/13/is-tata-motors-nyse-ttm-the-new-gm/

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