Toyota Goes Small to Make it Big in India


Toyota Motor Corporation (NYSE:TM) recently launched its smallest and cheapest hatchback car, Toyota Etios Liva, in India. Liva has been priced starting at approximately $9,000 and will compete directly with the likes of Ford ( F ) Figo, Hyundai (SEO:005380) Santro, and Maruti Suzuki (BOM:532500) Swift. The small cars segment is the most competitive auto segment in India, and Toyota's entry into this segment can potentially yield rich dividends for the company. Toyota sells its vehicles mainly under three brands: Toyota, Lexus and Scion and competes globally with automakers like BMW (GR:BMW), GM ( GM ), Ford, Honda (NYSE:HMC), Daimler (ETR:DAI) and others.

We have a price estimate of $94 for Toyota stock, roughly 15% above the current market price.

Small Car Segment Largest in India

The small car segment in India is the largest segment in terms of volumes. Understandably, this segment is also very competitive with the majority of automobile manufacturers aspiring to enter this segment with innovative, low priced products. Ford was recently able to reverse its fortunes in India with the successful launch of Ford Figo in March 2010 (See Ford's Investment in India is Paying Off). There are about 45 products that compete in this segment, compared to around 27 products in the mid-size segment.

Indian Automobile Market Expected to Witness Rapid Growth

Indian passenger vehicle sales increased from 1.06 million units in 2004 to 2.5 million units in 2010, implying a 16% annualized growth rate. This growth has been driven by an increasing number of available models, purchasing power, especially by the middle class, easy availability of car finance, favorable government policies and growth of used car market. The growth rate for passenger car sales dropped to 7% in May 2011 due to increasing interest rates, fuel price hikes, inflation and commodity price rise; however, most market participants consider these factors temporary. Over the long term, the Indian automobile market is expected to be among the fastest growing automobile markets in the world.

Toyota Poised to Grow its International Market Share

Toyota enjoys a premium brand image in India for high quality products. We expect Liva has the ability to do the same for Toyota that Figo did for Ford last year. In just one-and-a-half day after its launch, Toyota India reported receiving more than 11,000 inquires for Etios Liva with around 1,000 units already booked. After Liva's launch in India, Toyota can take it to other emerging markets as well. This will help Toyota grow its international market share, providing upside to our current price estimate of $93.90 for Toyota's stock.

You can drag the trend lines in the  modifiable charts above to see the impact of these trends on Toyota's stock value.

See our full analysis for Toyota .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: F , GM



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