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JLR's EM foray: Gamechanger for Tata Motors?

When Tata Motors bought Jaguar Land Rover (JLR) for $2.3 billion in 2008, it was eyeing two things � Jaguar's brand appeal and Land Rover's technology to boost Tata Motors� truck and passenger car business back home. Has it worked according to the plan?

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Jhini Sinha Phira

On hindsight, Tata Motors' acquisition of Jaguar and Land Rover can be termed as risk-that-paid-off. When Tata Motors bought Jaguar Land Rover (JLR) for $2.3 billion in 2008, it was eyeing two things -- Jaguar's brand appeal and Land Rover's technology to boost Tata Motors' truck and passenger car business back home. It may not have worked exactly that way, but Tata Motors' soon-to-be-launched models may be inspired by Land Rover.

This month Land Rover launched the Evoque, a mini sports-utility vehicle, which booked 20,000 orders before it even went on sale, forcing analysts to believe that the dream run will continue. This was in line with Tata Motors' intention announced early this year that it will invest about 1.5 billion pounds ($2.37 billion) every year for the next five years in new products. And most of its new products would be shipped to China, JLR's third-biggest market worldwide, where demand for luxury car is very high. Year-to-date, the company has sold nearly 27,000 vehicles in China, a 60 percent increase since last year. Data for August shows that Jaguar and Land Rover sales increased 31 percent to 21,242 units over 2010, surpassing its rivals. 

However the story takes a different turn at home. Ratan Tata's dream Project Tata Nano � aimed at India's growing middle class � failed on many counts. Distribution hiccups, rising cost of ownership, and an industry-wide slowdown in recent times weighed on the little car. Sales of the Rs one-lakh-frugal-innovation car declined at an alarming rate over the past three months. Its sales fell 85 percent in August to 1,202 units compared with the year-ago period. Its inventory pile up forced a production shutdown in August. Tata Indica, which fares better (and look better) than Nano also saw a steady decline in sales this year. A report suggests that the company's market share in the passenger car segment has registered a 10-12 percent decline from 16-17 percent earlier. Last heard, Tata Motors was trying to persuade its 3.5 lakh shareholders to purchase the world�s cheapest car at a discount.

If Tata Motors' global August sales paint a pretty picture, a lot has to do with JLR's scorecard. The group's global wholesales, including Jaguar Land Rover, in August 2011 was higher by 3% over August 2010. Given the pressures the company faces in India, JLR's volumes are critical at this stage. Analysts in India are open to buying Tata Motors. 

With  JLR preparing to dominate the car market in China, Tata Motors stock may bask in reflected glory. In the last five sessions, the stock has perked up over 18%. Portfolio Manager PN Vijay has kept a 4-month target of Rs 200 on the stock and strongly advocates a buy. In a recent report, LKP Securities has set a target of Rs 172, an upside of 21%, and rated the stock a Buy.

First Published on Sep 20, 2011 12:46 pm
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