Much has been made of last week's
General Motors (NYSE:
. But while everyone has been talking about GM, there is a car
company that offers absolutely explosive growth that should be on
your radar screen.
The high growth segment of the auto market that gets all the
attention is China, as well it should. China overtook the United
States as the world's largest automobile market in 2009, with sales
of 13.6 million cars, and is expected to purchase 100 million
vehicles by 2020. However, many forecast that the automobile market
in India will grow even faster than China's in the years ahead. ["
Forget China -- This is Where You Should Invest
What's so great about the auto market in India?
India is often mentioned as one of the fastest growing and most
promising emerging market economies. Like China, India has grown
strongly in the past decade and created a rising middle class. This
Indian middle class is, by some accounts, 300 million people strong
and the fastest growing segment of the Indian population. But, car
sales lag behind not only most of the world, but other emerging
market countries as well.
India currently has only about 12 cars per thousand people. Not
only does this number pale in comparison to 842 cars per thousand
people in the United States, but India is way behind other BRIC
nations. Brazil, Russia and China have per capita penetration rates
of 156, 213 and 128 cars per thousand, respectively.
Obviously, there is room for growth.
In fact, October car sales increased a whopping +38% year-over-year
(to about 183,000). India'sGDP grew a remarkable +8.8% in the first
half of 2010, and many forecast that level of growth to not only be
sustainable, but to increase in the next few years. Also, India has
been building out its highway infrastructure like crazy and is
poised to handle an anticipated rapid increase in traffic.
So what's the best way for investors to play the growth in the
Indian car market?
Tata Motors Ltd. (NYSE:
is India's largest auto maker, producing buses, trucks,
tractor-trailers, passenger cars, light commercial vehicles and
utility vehicles. Tata also owns premium brands Jaguar and Land
Rover. The company has a huge 60%market share of India's commercial
vehicles sales, but also sells all over the world, with significant
operations in the U.K., South Korea, Thailand and Spain. Tata is
currently the world's fourth largest truck manufacturer and its
second largest bus manufacturer.
How has the market treated this fast-growing car company?
The stock returned +281% in 2009 and is up more than +90% so far in
2010, compared to +34% and +9% for the S&P 500 during those
But while things look promising, the story isn't perfect. The
promise of India's auto market has not been lost on the
competition. Just about every major international auto manufacturer
has set up shop in India, including
, Renault-Nissan, GM, Volkswagen and
Competition will be fierce and it is highly unlikely that Tata will
be able to maintain its 60% commercial vehicle
going forward. That said, there seems to be more than enough
business to go around for the foreseeable future. Sales at Tata
surged +37% in the second quarter to 286 billion rupee ($6.2
billion) and profits increased by a factor of 100 to $502 million
from last year's quarter.
The company cited higher domestic volume and aturnaround in the
Jaguar Land Rover unit, which it purchased from Ford in 2008 amidst
a declining car market. These luxury brands are gaining significant
share in the growing luxury markets of China and Russia, where
sales of the cars are up +72% and +52%, respectively, on an
In India, sales of trucks and buses have skyrocketed +23% in the
first half of 2010, compared with last year's first half, and car
sales shot up +36% in the second quarter. In the face of the strong
results, Tata increasedearnings estimates for 2011 by +37% from
$2.82 per share to $3.87.
Tata isn't simply content to enjoy the ride of India's growing auto
market, either. It's a cutting edge innovator in fuel efficient
vehicles and vehicles that meet demand for the current market. The
company just launched the much anticipated Nano this year, a
roughly $2,300 automobile that will be affordable to many middle
class consumers not only in India, but in the rest of the emerging
markets as well. This car has the potential to change the market
for automobiles in emerging markets and could dramatically increase
Tata's market share around the world.
Action to Take -->
Despite the recent stellar performance of the stock, Tata still
sells for less than 10 times anticipated 2011 earnings . Tata is
truly a fast-growing international automobile giant and can still
be purchased at today's prices.
-- Tom Hutchinson
Tom has a 15-year history as a financial advisor with UBS
constructing investment portfolios. Tom's background includes a
NASD Series 7 and 63 certifications. Read more...
Disclosure: Neither Tom Hutchinson nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.