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Posted by: Bruce Einhorn on March 01, 2010
Tata’s 2008 acquisition of British luxury carmaker Jaguar Land Rover (JLR) always seemed to me like a vanity play. The symbolism was nice – Indian company buys high-profile symbol of the former colonial power – but JLR and its money-losing British operation seemed like an unnecessary burden for a company that should be focusing on the huge opportunities in its home market. The timing of the $2.5 billion deal was awful, too, coming just before the subprime meltdown hammered demand for high-priced luxury names like Jaguar.
Investors clearly haven’t been so concerned, though. Tata’s ADRs are up 422% in the past year – and that was when JLR was still losing money. Now the luxury division is finally starting to make profits for Tata thanks to cost cutting, a better product mix and a slowly improving global economy. A slew of analysts – including those at Morgan Stanley, Bank of America Merrill Lynch and Nomura – have come out with upbeat reports about the company following Tata Motors’ quarterly earnings announcement last week. Overall sales rose 47% to $5.65 billion and profits were $141 million, compared to a loss of $565 million a year earlier. JLR made a profit of 4.17 billion rupees ($90 million), compared to a loss of 11.8 billion rupees a year earlier. Looking at the results, Nomura described a “significant turnaround” at JLR and Morgan Stanley said JLR’s earnings “were significantly ahead of our estimates.” Morgan Stanley analyst Binay Singh added: “We believe the company is well placed to benefit from a volume recovery” in the luxury car market as well as the Indian market for commercial vehicles.
Tata recently hired Carl-Peter Forster, former head of GM Europe, as Group CEO and Ralf Speth, a BMW veteran, to be CEO for Jaguar Land Rover. “These appointments should strengthen overall management and speed up the recovery process,” Macquarie analyst Sanjay Doshi wrote in a March 1 report. I still have my doubts that buying JLR was the right deal for Tata, which trails far behind market leader Maruti Suzuki in its home market despite Tata’s much-hyped Nano, the world’s cheapest car. I would have thought the company needed to focus more on India. Still, the company announced today that February sales in India rose 56%, so things are heading in the right direction at home. With Forster and Speth on board, the new talent should help Tata keep the turnaround going overseas, too.
BusinessWeek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies. Eye on Asia’s bloggers include Asia regional editor Bruce Einhorn, Tokyo reporter Ian Rowley, Korea bureau chief Moon Ihlwan, Asia News Editor and China Bureau Chief. Dexter Roberts, and Hong Kong-based Asia correspondent Frederik Balfour.