TATA Motors – Potential Value in India’s Emerging Markets

tata_home_r2_c2Tata Motors is an Indian Car Manufacturer who recently came out with Nano Car that cost less than $2500. A lot has been written about its design innovation, supply chain, and its execution.

One of the key here is that Tata Motors created a whole new market for itself. Until now the cheapest car available to Indian population was at $5000. While Detroit was busy with making incremental changes and coming up with so called innovative financial schemes, TATA Motors was busy listening to its customer base. It listened and executed to come out with a car that its customer will buy.

Many in Western world have critiqued the no frills bare bone Nano car saying that it could have been designed in west, but would be difficult to sell the developed economies. But the point being missed here is listening to its customer base and designing accordingly. With its huge distribution network, design powerhouse, and existing infrastructure, Detroit Big Three missed the bus not only in US, but other emerging markets as well. Detroit missed riding the wave of small fuel efficient cars.I believe Nano Car is an example of innovation driven by what customers wants. It does not necessarily provide any technological breakthroughs, but it provides innovative ways in which companies address what its customer’s wants. For example, GM gets approximately 250+ patents every year for its innovations, while Tata Motors has only 34 patents filed for Nano Car. Tata Motors leveraged its existing patent portfolio, and remixed them effectively to ensure, they design to meet customer requirements and price point. Tata Motors has positioned itself as the only one who can supply such cheap cars. It remains to be seen how TATA Motors management converts this design success into a profitable one.

Another aspect that is being widely discussed in financial media is about TATA Motors debt level. This debt level is due to buying of luxury brands Jaguar and Land Rover in UK. I believe this is another example of herd mentality. Just because western auto companies are buried under debt, analysts are continuing to raise flags on any company with debt. Two aspect are getting missed in this herd mentally viz. (1) TATA Motors existing business continues to be profitable even during the recessionary period; and (2) TATA Motors has excellent market positioning vis-à-vis products and India markets. Yes, TATA Motors has debt, but it is something that I believe is at manageable level.

TATA Motors Nano Car is another example of innovation in business strategy or product positioning. Does this strike any similarity with Apple (iPhone), Nokia (phones for emerging markets), and P&G (with design initiative)? All these companies are listening to their customers and adapting accordingly.

Is TATA Motors a good dividend growth investment?

TATA Motors stock trades as TTM (ADR) on NYSE. The stock’s current yield is 1.5%, pays dividends only once a year, and it has paid growing dividends since 2005. Although I like the company and management’s visionary goals to satisfy its customer base, it is not a choice for dividend growth or any other dividend strategy. It would not pass any dividend investing screens. However, I am short listing TTM (ADR) as a potential value stock for long term investing in emerging market. Short listing allows me to follow and read more about the company.

4 Responses to “TATA Motors – Potential Value in India’s Emerging Markets”

  1. Good point about TATA thinking beyond patent accumulation. We know that GM’s been stuck in ruts, but I haven’t yet seen anyone point to a specific one.

    TATA might be a good growth stock.

    • Daniel,

      In term of capabilities, Detriot Big Three had a huge leverage. But they failed to listen to customers, continued with their historical processes, and focused more on union squabbles. Yeah unions have been a pain in neck, but then they do not even have a good product. I don’t think Unions prevented them from developing good products!

      Best Wishes,

      • Add to that, in the case of GM, an almost monomaniacal scramble for cash in the till without concern for margins. That, plus the debt binge necessary to finance such a decadent strategy, was the final mistake.

        • That’s another example, instead of focusing of actual product development, they kept pushing what they had. Yes, that was final nail in its coffin!

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