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Business News/ Companies / Tata needs to sell 30,000 Nanos a month
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Tata needs to sell 30,000 Nanos a month

Tata needs to sell 30,000 Nanos a month

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New Delhi: The country’s largest auto maker by revenues, Tata Motors Ltd, will need to sell more than 30,000 Nanos a month for it to earn profits from the small car, predict analysts.

A Mint poll of six analysts yielded a median figure of 32,500 units a month, or 390,000 cars a year—some 56% more than the firm’s start-up capacity of making the small car. The highest estimate was 45,000 a month and the lowest 20,000 a month—the range indicating the analysts’ view of the mix of the various variants of the car.

A big jump in raw material prices since development on the vehicle first began in 2003 and company’s decision to hold on to the Rs1 lakh price at the factory gate are huge factors in fixing profitability, they said. All said that the car was unlikely to contribute to the company’s fiscal 2009 results, typical when new models are introduced by a car maker. “The break-even depends on the realization and product mix," said Vaishali Jajoo, analyst with Angel Broking Ltd, Mumbai.

Fitted with a 623cc rear engine, the Tata Nano base model has no air conditioning, no electric windows and no power steering, but add-ons are planned and will cost more.

It is with these higher variants that the company hopes to recoup money, analysts said. The base model will cost Rs1.3 lakh on the road including registration charges, taxes and insurance.

“Unlike, say, the Indica, where they just wanted to make and sell a car, the approach to the Nano is different," said a Mumbai-based analyst, who didn’t want to be named. “They will take at least couple of years and around 200,000 units to break-even at the Ebitda level."

Ebitda stands for earnings before interest, taxes, depreciation and amortization and reflects the gross profit without accounting for capital costs.

A Tata Motors spokesperson declined any comment.

The firm is building a plant in Singur, West Bengal, with a capacity to build 250,000 Nano cars a year. The factory, which is almost complete, will start trial production later this month or in early August, said a vendor, who has started making parts for the car. This vendor did not want his or his company’s name taken.

“They will have to sell at least half a million units before it (the Tata Nano) pushes the needle (on profits)," said an analyst with a foreign brokerage who declined to be named since he is not authorized to talk to the media. “(Even) if they have a realization of say ,000 per unit, in the first year it amounts to just 54 million ( .4 crore)."

Tata Motors sold 585,000 vehicles—cars, 1-tonne haulers, light commercial vehicles and trucks—in the last financial year to March with revenues of Rs33,094 crore and net profit of Rs2,028 crore.

But perhaps, Tata Motors doesn’t want to make more than half a million Nanos a year. In March, chairman Ratan Tata said the firm intends to build car factories in India that it will then sell to entrepreneurs, should demand for the Nano exceed 500,000 a year. He didn’t say how and where the company intends to produce the remaining 150,000 units after pushing the Singur plant to peak capacity of 350,000 units.

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Published: 22 Jul 2008, 12:02 AM IST
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