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Move over BC, ADů - Views on News from Equitymaster
 
 
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  • Jan 16, 2008

    Move over BC, ADů

    ůas in "Before Christ" and "After Death". Here comes BN, AN - as in "Before Nano" and "After Nano". The way this wonder car from the stable of Tata Motors is expected to change the dynamics of the Indian car market necessitates the industry's performance and strategies to be divided into these two periods - BN and AN.

    As we had mentioned in a previous article of the top 5 events that could shape 2008, the Tata's 1 lakh wonder has indeed gone beyond with the expectation of shaping the auto industry for some years to come. Over the past few years, the Tata Group has developed a knack for grabbing headlines, mostly for their ambitious overseas acquisitions. If all goes well, the Nano will hit the roads by the end of 2008. Thus, while India's prowess in the software sector is now well acknowledged, the success of this launch will possible pave the way for India's recognition as a top notch manufacturing hub known not only for its cost advantage but also for its quality. If this were not enough, the company is believed to be one of the frontrunners for the ownership of Ford's iconic brands 'Jaguar' and 'Land Rover'. Clearly, there can't be a better variety in the kitty of any automotive company.

    As a leading American newspaper reports, "Few products designed and made in India have been awaited as eagerly and with as much apprehension as the Nano. A car for Rs 1-lakh (US$ 2,500) was the dream of four years for one man, Tata Motors Chairman Ratan Tata, who saw the peril behind a family of four riding on a two-wheeler and the need to offer them a car that would be much safer for travel, yet affordable. Between the dream and reality was the challenge of putting on sale a car for a price no manufacturer in India or abroad was willing to countenance. So the visionary Tata and his flagship company, Tata Motors, deserve great credit for accomplishing what most people considered utopian, and reinforcing the point global automobile majors are now acknowledging: India is a natural home for 'frugal engineering'."

    The Tatas have thrown out all the little extras to come up with only the barest essentials of a car. At 625-cc, it has one windscreen wiper, no power steering, no power windows, no air-conditioner, and will give about 20 km to a liter. But is the Indian consumer complaining? No! This is because the Nano has been marketed as a four-wheel vehicle alternative to the motorcycle, which is in fact one of the most dangerous vehicles to drive on Indian roads given the driving skills and attitudes of those behind the four-wheels (we're counting the Blue Lines and trucks here!).

    Well, we are still living in 'BN' as the real test for Tata Motors will be to successfully get the Nano on road, with least amount of hiccups (as was faced during the launch of Indica). The company's success in doing so will well and truly signal the onset of AN. During this period, there might be companies vying to launch a car which could be priced at the same level as Nano or even slightly lower! But the Nano will still be remembered as the 'first' car that changed the face of Indian auto engineering. And it can well lead the way for a host of 'low-cost' and quality options in places India and Indians want them more - housing, public transportation and power.

    Our view on Tata Motors' stock
    As far as Tata Motors' stock is concerned, while Nano could well make a big difference to its fortunes in the passenger cars space, it is the mega bucks that the company might have to shell out for its likely purchase of the iconic Ford brands 'Jaguar' and 'Land Rover' that is worrying us. It should be noted that the company is in the midst of a huge capex plan of its own and any more debt will only weaken its balance sheet further. Thus, at the current juncture, we advise investors to exercise caution on the stock. The Nano though has our thumbs up from whatever we have seen of it so far.

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