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Friday, March 27, 2009

Tata Car Nano May Drive In Profits For Tata Motors

Tata Car - Nano has been buzzing in India and around the globe for quite some time now. Recent launch from Tata motors has definitely boosted the prospects for Tata motors with this new cute product. But from investor's perspective what change would this launch do for company balance sheet and so for shareholders? Here is an article trying to throw some light on this and guide whether one should buy stocks of Tata motors or should be in wait and watch mode.

The pot of gold is right round the corner for Nano. With commodity prices and excise duty dipping, and tax benefits stacked up in its favour, the road to profitability looks a lot closer than when it did when Tata Motors conceived the project in 2002-2003.

Nano has hit the market at the right time — commodity prices have fallen 30-40% since August last year, when they had peaked. The excise duty on smaller cars too has come down to 8% from 12% over two years.

Tata Motors was banking on profitability two years from now, but MD Ravi Kant says the car will ring in profits from the word go. The 10-year excise holiday in Uttarakhand will also help Tata Motors considerably, a top Tata executive said. The first 50,000 cars will roll out of its Pantnagar plant. Declining steel and metal prices too could lead to lower input costs on future supply contracts for Nano.

Read: Tata Nano - Can It Be Dream In Stock Markets For Tata Motors

Tata Motors is expected to raise huge amounts from Nano bookings — the company expects 5 lakh orders, which will generate a corpus of Rs 5,000 crore.

Further, the booking will fetch the company an interest-free deposit of Rs 95,000 (the amount for the base model) and Rs 1.4 lakh (booking for the top-end variant). Besides, it will also gain a Modvat benefit, which means the company will not have to pay tax on auto components as the supplier would already have done so.

“Tata Motors will need to sell many Nanos to break even. However, by leveraging the Nano platform, it can make high-end cars for overseas markets. With several variants, it could be a highly profitable product for the company,” said auto analyst with Booz & Company, Vikas Sehgal.
Source: EconomicTimes

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