TAKING STOCK

Automaker's fortunes should grow with cheap, small car

Dear Mr. Berko: Please tell me about this Tata Nano car that sells for $2,500. What kind of car is it? Tell me about the company that makes this car and if and where I can buy the stock. Do you think the stock would be a good investment? Who started this Tata Group and do they make anything other than a cheap automobile that I must admit looks pretty good in magazine photos. I don't want to own a foreign company but this stock could be an exception. Would you buy the car?

M.M.

Frisco, Colo.

Dear M.M.: Tata Group is one of the largest corporations in India with 81 different operating companies generating $30 billion in revenues on six continents for its 2.9 million shareholders. Tata Group is Tata Power, TCE Consulting Engineers, Tata Chemicals, Tetley Group Tea, Tata Coffee, Tata AIG Insurance, Indian Hotels, Nelito Systems (computers), Titan Industries (timepieces),  Rallis India (agricultural chemicals), Tata Steel and TAL Manufacturing Solutions, all of which and more, are publicly traded companies on India's National and BS Stock Exchanges.

The Tata Group was founded in the late 1860s by Jamsetji Tata and 70 percent of the parent firm (Tata Sons Ltd.) is held by a philanthropic trust headed by brothers Ratan and Dorrabji Tata. Ratan Tata, who trained as an architect at Cornell University, is the chairman of this sprawling enterprise. I've spent a lot of time traipsing around India from Tamilnadu on the South to Punjab and Kashmir to the North and I can tell you first hand that the Tata name is as ubiquitous in India as is the McDonald's name in the U.S. If you wish to become more familiar with the Tata Group, write the estimable Merrill Lynch. This marvelous, astute, brilliantly managed worldwide financial company has an impressive, well-written document on Tata and it's worth a read.

Tata Motors Ltd. (TTM-$17.27) was listed on the Big Board in mid-2004 and traded between $8.60 and $9.63 that year. And when a reader from Minneapolis told me he bought 300 shares at $9.10 I stupidly ridiculed his purchase. I had met some of the Tata folks when I was in New Delhi and I was not impressed - but it's a rather big family and I might have met and dined with nonbusiness members or very distant cousins.

TTM, founded in 1945 makes buses, pickups, multi-utility vehicles, tractor-trailers, tippers, light, medium and heavy trucks, passenger cars and military vehicles. During the last 12 months, TTM had revenue of $8.7 billion and produced a net income of $593 million or $1.44 for each of its outstanding 386 million shares. That's a net profit margin of 6.8 percent and enough to make Chrysler, GM and Ford weep.

And I think India's Tata Nano, which reminds me of the Model T, will be a home run. At $2,500, will be the cheapest car in the world. This four-door model won't have a radio, power steering, power brakes or air conditioning. In a country of 1.2 billion people where six of every 1,000 people own a car, the Tata Nano will provide an impressive new mobility that will be responsible for some good and bad social changes.

While the Tata Nano will clog currently congested roads and spew tons of carbon-dioxide gas in the cities, it could catapult TTM's revenues to $10 billion in 2009 and push profits above $2 a share. For an issue that regularly trades between 10 and 13 times earnings, TTM shares could trade between $23 and $26 next year.

The market for the Tata Nano is not just in India, but Africa, China and Asia where most people travel by bus, train or truck. According to a close acquaintance in Mumbai (Bombay), the Nano is a well-made car and its 625-cubic centimeter engine gets more than 13 miles per liter of fuel, which is equivalent of about 52 miles per hour. There should be a huge demand for the two-cylinder, 65 mph top speed vehicle (remember the Beetle). Nano could, like the Beetle, become an international icon. Ratan Tata calls the car the "People's Vehicle" and oddly enough the German word Volkswagen also translates to "people's vehicle."

The 10-foot-long and 5-foot-wide Nano won't come off the assembly lines till November of this year, so it won't have an impact on TTM's earnings till 2009 or 2010.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@comcast.net.
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