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Foreign Investment: For Tata Motors, cheap cars mean higher profits

Posted March 12, 2008

"Tata released its one lakh car, the Nano, to a lot of fanfare, but little stock movement, a couple of months ago… perhaps American investors couldn’t get their brains past the complex math of turning one lakh rupees into dollars and cents profit." — Stephanie Grimmett

 

by Stephanie Grimmett

Baltimore – (TFN): It’s time to get back into Tata Motors (TTM: NYSE).

I can already hear the booing and hissing starting back there in the cheap seats, but I’m sticking to my statement. Tata Motors may have more debt than I’d like, but it’s also the leader of an emerging industry in one of the fastest-growing economies worldwide.

Plus, Tata has plans for world domination. And I don’t see anyone getting in its way.

The company is taking steps to become a global force with the imminent takeover of Ford’s Jaguar and Land Rover brands. For now, Tata has promised to keep the brands the same (still manufactured in Great Britain and, hopefully, maintaining their luxury images).  And Ford is gladly turning over its foreign luxury lines to a non-competitor, well, at least a current noncompetitor.

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The British luxury brands are certainly a strong statement for the Indian carmaker, and buying two of the most well-respected brands in England is definitely a good way to make yourself known to the Western half of the world in a hurry. Investors may be wondering, if the company isn’t changing the manufacture of the two brands, how Tata plans to make them pay. Afterall, isn’t the best part about Tata the fact that it can get its hands on cheap labor in its home market?

That may be true when it’s selling its products to other countries, but Tata made, and still makes, most of its money selling vehicles in its homeland to other Indians, not rich, spoiled Westerners. The company has the profits and the sales to prove it knows how to control costs and sell itself on a local, as well as an international, level.

Tata released its one lakh car, the Nano, to a lot of fanfare but little stock movement, a couple of months ago… perhaps American investors couldn’t get their brains past the complex math of turning one lakh rupees into dollars and cents profit, which Tata will be making a lot of as Nano sales rack up.

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Maybe investors will find counting euros a little easier. Tata announced plans to bring the Nano to Europe in coming years. Yes, with modifications, it will be able to pass the EU’s increasingly strict emissions laws. And it will also still be really cheap. I can see a wave of first-time car owners hitting the tiny European roads with their tiny Indian cars now.

The Europe announcement was met with skepticism among investors. In fact, Tata fell more with the Indian exchanges than it rose on its major announcements in the last few months. But the stock has stabilized, as have India’s two exchanges. And I think it’s safe to jump back into TTM to enjoy some of its coming profits.

This is a long-term investment. We’re talking months or even years here. Tata is the future of automobiles. And it’s coming to Europe with a… well, hopefully, with a purring motor, and without a single bang echoing through the streets. Buy Tata Motors (TTM: NYSE) now before the rest of the world realizes its on sale.

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Posted by Stephanie Grimmett · Filed Under International Investing 

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