While Tesla Motors (TSLA) has stolen the spotlight this year for growth and stock volatility, investors in another unique car company have been quietly and steadily rewarded.
Tata Motors (TTM) shares are up roughly the same 35% year-to-date as TSLA (as of Wednesday 5/21), but with far less volatility. A 41% earnings surprise for their December quarter (3QFY13) helped the outlook as sales in the British Jaguar Land Rover unit grew 23%, with demand for their luxury vehicles increasing in China, North America and Europe.
This made the stock a stock a Zacks #1 Rank in February after the report and my colleague Neena Mishra chose Tata for her Bull of the Day on March 6, where she remarked on the company's key acquisition six years ago...
'Tata Motors had acquired both the Jaguar and Land Rover brands from Ford Motors in 2008 and turned them around into a major profit source. Management expects the sales and performance momentum for Jaguar Land Rover to continue with a richer product and geography mix.'
Back to #1
This week, Tata earns back the top Zacks Rank as analysts hike estimates following record April sales for Land Rover at +28% year-over-year. This prompted Jefferies & Company to boost 2014 EPS estimates from $3.86 to $4.31 and next year profit targets from $3.98 to $4.42.
This pushed up the 2015 EPS consensus of India's top car and truck maker to $4.52 and brought down the forward P/E multiple under 9X, in line with competitor Toyota (TM). Tata ranks as the world's fifth largest truck manufacturer and fourth largest bus manufacturer with operations in the UK, South Korea, Thailand, South Africa and Indonesia.
Though less than 1/6 Toyota's size, the $26 billion Tata compares very well on a price-to-sales basis too as they get only a slight premium of 0.72 vs 0.67 for 4 times the projected growth rate of the $171 billion Japanese behemoth.
India's Top Brand
In a 2013 study, The Economic Times of India found Tata to be the country's most revered brand, noting 'In a free enterprise, the community is not just another stakeholder in business, but is, in fact, the very purpose of its existence'; that, in a nutshell, is the fundamental philosophy espoused by founder Jamsetji Tata.'
The Tata industrial group of companies operates in sectors that encompass steel and energy as well as autos. Tata Motors traces its roots back to 1945 when the Tata Engineering and Locomotive Co. was established to manufacture locomotives and other engineering products.
Several interesting milestones in the company's history mark the path of a key automotive partner and growing empire in the world's second most populous country...
1954: Collaboration with Daimler Benz for manufacture of medium commercial vehicles
1983: Manufacture of Heavy Commercial Vehicle commences
1985: First hydraulic excavator produced in collaboration with Hitachi
1991: Launch of first indigenous passenger vehicle, the Tata Sierra, and 1 millionth commercial vehicle sold
1993: JV with Cummins (CMI) for manufacture of high horsepower and emission friendly diesel engines
1994: JV with Daimler-Benz for manufacture of Mercedes Benz passenger cars in India
2005: Launch of Tata TL 4X4, India's first Sports Utility Truck, and 1 millionth passenger car sold
2006: 3 millionth commercial vehicle sold
2008: Tata Motors unveils its People's Car, Tata Nano, at the 9th Auto Expo
2009: Launch of the Jaguar Land Rover range of premium luxury vehicles -- Jaguar XF, XFR & XKR and Land Rover Discovery 3, Range Rover Sport and Range Rover in India
2010: Tata Nano receives the world's oldest and most coveted GOOD DESIGN Award for 2010, 4 millionth commercial vehicle sold
2013: Tata Nano offered industry first phenomenon - Swipe your credit card and drive home a Nano
A Modi-fied Economy
In Neena's March report on Tata, she noted that the Jaguar Land Rover brands are carrying the day right now for the company in terms of growth...
'Sales of Tata-branded vehicles fell 36% in India due to weakening demand, increasing competition, and a tight financing environment. Management hopes that recent launches including Nano Twist and Vista VXTech and upcoming products like BOLT and ZEST will be able to drive sales in India and some of the international markets where they are expanding.'
Clearly, the Jaguar Land Rover unit is a key growth asset for Tata. But other good news could be brewing for India's automotive powerhouse following the national election of the pro-growth Narendra Modi and his Bharatiya Janata Party (:BJP).
According to our in-house all-things-political-in-India expert Neena...
'With a landslide win, BJP led by Modi is all set to form the government on its own in India, without having to rely on smaller, regional parties' support. No single political party had won an absolutely majority in India since 1984 and coalition politics has been one of the main reasons for the policy paralysis seen in recent year as regional parties had their own narrow interests and agendas and often blocked reform measures. With a decisive mandate, it would be easy for the Modi government to effectively execute their reforms agenda which should accelerate economic growth in India.'
And this is indeed what many US investment analysts recognize as they continue to raise their targets for India's stock market index, the Sensex. While Tata shares have had quite a run already this year, I bet this stock will still be under accumulation by large investors any time it dips to its 50-day moving average.
Tata Motors reports for the March quarter on Thursday May 29.
