Tata Motors (TML) has announced the commercial launch of the Nano keenly awaited across India since it’s unveiling on 10 January 2008.
We bring you an impact analysis on Tata Motors from leading brokerage houses across the country.
The Nano is BS-III compliant and comes with all-new 2-cylinder aluminium MPFI 624cc petrol engine mated to a four-speed gearbox. It will be available to consumers in three variants.
The car will be on display across the country at Tata Motors Passenger Car dealerships and other select authorized outlets from 1 April 2009. The car is currently being manufactured at the company’s Pantnagar plant in Uttarakhand in limited numbers.
The new dedicated plant, at Sanand in Gujarat, will be ready in 2010 with an annualised capacity of 350,000 cars.
The Nano Standard version (BS2) will be priced at Rs1lakh ex-factory Pantnagar (excluding transportation charges and VAT) thereby delivering on the promise made at the unveiling of the car at the Auto Expo in New Delhi last year on 10 January 2008.
We estimate Tata Motors to sell 50,000 units and 1,50,000 units of the Nano in FY2010 and FY2011, respectively.
Assuming realisation of Rs1,00,000 per unit, it will add just Rs500 crore and Rs1,500 crore to the company’s sales in FY2010E and FY2011E respectively, which is not very significant considering Tata Motors’ size including J&LR (Jaguar and Land Rover).
In FY2011, it would be adding approximately just 2% to the company’s topline. Looking at the production constraints, it would not be able to add to the company’s bottomline at least for the next couple of years and thus would not make any significant change in company’s’ financial performance.
On account of the domestic and global Auto outlook having deteriorated significantly, we remain Neutral on TML.
We believe the stock will start performing when there is reasonable confidence that 2HFY2010 will see better volume growth in the commercial vehicles (CV) Sector due to softening of interest rates and improvement in the macro-economic factors.
We expect Nano to contribute sub 2% to FY10E revenue, considering the restricted capacity at the Uttarakhand satellite plant.
The company’s volumes will scale up only after the Sanand plant turns operational (which is not expected before January 2010).
Meanwhile, the company can finance its working capital at nominal interest rates on booking amounts received for Nano.
Multiple headwinds such as cyclical downturn in commercial vehicle sales, interest payment on rising debt, equity dilution (25% post rights), significant decline in earnings of subsidiaries, and pension deficit of ~$700mn in JLR portend significant pricing pressure.
We recommend a SELL on the counter.
Click here to read analysis by Anand Rathi Securities