Posted by: Bruce Einhorn on March 1, 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.