Stock price when the opinion was issued
There are 2 very different growth engines for this company. The domestic auto industry in India is growing very, very quickly. A few years ago they bought Jaguar Land Rover, which is contributing a lot to their margins, as well as top line growth. They have been introducing a number of new product launches. She likes this a lot. It has a combination of top line growth as well as potential for margin expansion. Expects about an 18% upside in the next 18 months.
India just took all their 500 and 1,000 rupee notes out of circulation. They have de-monetized the system, which has created havoc. There were a lot of positive reasons for the PM to do this. It created a big deterioration in the economy, so the market has commensurately gone down. If Modi is successful, it will be a very strong positive for the economy. Most stocks dropped because of this. If you wait 3-6 months, things should start to improve dramatically. He is quite positive on India’s outlook.
This is one of the fastest growing luxury OEM companies globally. Several years ago they made an acquisition of Jaguar Land Rover, so it is now a very big global auto company. Think of it as 2 businesses. Domestically they sell medium/heavy commercial vehicles. Globally, they sell Jaguar Land Rover, which in China is a fast growing market. In the last 12-18 months, the domestic market in India has been a bit slow, and she thinks that is going to improve. The global business has continued to be very strong. Valuation is very compelling and she thinks there is a 10%-12% upside.
This is really 2 companies. They bought Jaguar Land Rover a few years ago. You have Tata cars in India where ownership is less than 10% of what it is in North America, but has been losing market share to some of the smaller players. Then you have the high-end auto business. Jaguar Land Rover has been a little noisy with a few tough quarters, primarily because of foreign exchange. Also, there has been a lot more competition in the high end auto business. Her preference is Maruti Suzuki (MRZY-OTC). It has 47% market share of the passenger market in India, and is growing very quickly.
Tata Motors sold off dramatically after Trump’s anti-foreigner rhetoric started. So did Subaru. These companies are trading at very attractive levels. He’s not a fan of the auto sector and so he doesn’t own it, but he sees a potential trade here. Tata sells one of the cheapest cars and has a huge addressable market. He would like to see Tata go a little lower before buying it.