Tata Motors may still be best known as the Indian auto maker behind the world's cheapest car, the Nano, but its fortunes now are being driven by its acquisition of British luxury brands Jaguar and Land Rover—and there's a long road ahead.
The initially maligned purchase has already worked out well for shareholders, with Tata Motors' American depositary shares returning 26% over the past three years, compared with 14% for the S&P 500. The ride isn't over: As the company introduces eight new or refreshed models this year, money managers expect profitability to improve and sales growth to continue. Within the next 18 months, Tata, which trades at a discount to global luxury auto makers, could narrow its gap with the likes of BMW and Daimler, offering 25% upside in the stock.
TTM.nyse SLASHED COSTS and invested $3.2 billion in the Jaguar Land Rover division. Sales soared, and the company's profits quintupled from 2010 to 2012—its fiscal year ends in March—to $2.8 billion. The division now generates more than three-quarters of Tata's earnings before interest, taxes, depreciation, and amortization, and two-thirds of the $39.8 billion in sales expected for fiscal 2013. The luxury brands have transformed the company, created in 1945, two years before India's independence, into a global player with a foothold in the lucrative and growing luxury-auto market. "If you changed Tata's name to Jaguar Land Rover, the stock would get a bump up," says Burns McKinney, manager of the $3 billion Allianz NFJ International Value Fund.
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