Tata Motors: a great proxy for emerging market growth

Indian car manufacturer Tata Motors (TTM, quote) is moving towards a new 52-week high in New York trading early this week. Is now the time to jump into this emerging automobile company?

Image courtesy Varghese Jacob: http://commons.wikimedia.org/wiki/User:VarghesejacobTata Motors is perhaps best known for its innovative Nano car, which has attempted to attract customers only recently moved up into the middle class who can now afford a small car instead of a motorbike.

Unfortunately, the Nano was not as successful as had been anticipated, which somewhat weighed on the stock. While the Nano is actually showing signs of improvement in terms of sales, Tata Motors’ diverse holdings means that there are plenty of reasons to be involved in the name that don’t revolve around the micro-car.

Tata Motors is involved in the making of heavy vehicles like trucks, including cheaper models that will appeal to emerging market customers. As well, the company has entered into agreements with governments like Malaysia to sell armored troop carriers.

Even more compelling is Tata Motors’ interests in the luxury segment of the automobile industry. Although its leveraged buyout of Jaguar Land Rover was ill-timed — they bought the company at the height of the equity boom and left Tata Motors in a difficult situation credit timed — they have turned the previously struggling British high-end car maker into a very profitable venture. In particular, the car company is poised to take advantage of the Chinese luxury market.

Not only did Land Rover and Jaguar sales increase 60% in China in 2011, Tata Motors has entered into a deal with Chinese outfit Cherry Automobile to create high-end automobiles for the Chinese market.

Because of its diversified holdings, as Forbes claims, the company makes a great proxy on global growth. Tata Motors also allows investors to gain exposure to multiple emerging markets such as India, without being particularly susceptible to the more troubling elements of the macroeconomic environment in India (EPI, quote) .

Trading at a very reasonable 10.7 times trailing earnings and roughly 7 times forward earnings, the stock still looks relatively inexpensive here, even though it has effectively doubled since November.  

Disclosure: Author may start a position in TTM within the next 72 hours

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