Tata Motors - small car - eventupdate - buy

 

Tata Motors (TTMT IN, INR 774, maintain Buy)

 

Tata Motors will unveil its long-awaited one lakh (INR 100,000) car (hereon referred as Jeh, reportedly Ratan Tata's favourite moniker for it), on January 10 at the Auto Expo 2008 in New Delhi. While the exact pricing of the car and its launch date is likely to be declared later in this year, we believe that Tata Motors may have hit a sweet spot with that particular price point.

 

We analysed the passenger car markets of about 25 countries in the context of their income levels and affordability of entry-level cars. Our research shows that at an affordability level (measured as price of a new car in terms of months of per capita income in purchasing power parity basis) of about eight months income, passenger car sales hit a sweet spot. With India's per capita GDP at about USD 3,800 on PPP basis, and Tata Motors intended price target for the car at USD 2,500, we believe the one-lakh car may be right at the point where it can go on to garner unexpectedly large volumes. This is precisely the key to making money at those pricing levels.

 

Although the overall cost structure of any car varies significantly across price points, we have looked at the broad elements of the cost of designing, developing, and manufacturing a car, and potential areas for Tata Motors to have cut and saved costs to achieve the intended price point.

 

We maintain our 'BUY' recommendation on the stock on the back of our expectations of a big positive surprise from the company's passenger car business, a robust recovery in the commercial vehicles business, and the potential from value unlocking from its subsidiaries.