The Hindu Business Line : Nano impact: Analysts adopt wait and watch approach

Mumbai, Jan 11 The Tata Motors’ Nano might have earned plaudits from auto industry. But the investment community would still prefer to wait and watch.

“It has just been unveiled. The actual launch will be in the last quarter of the financial year 2009. It is too early to predict. We are treating it as it is,” said Ms Vaishali Jajoo, an analyst with Angel Broking.

She doesn’t also think there is going to be any immediate impact on the company’s share price. “Though the margin level is not revealed yet, one can reasonably expect 5-7 per cent margin at the operating level. Once they have sold 2,50,000 units they will start generating profit,” she said.

But Mr Navin Matta, an analyst with Dolat Capital Markets, another broking firm said, “it will have a negative impact on the stock as the company’s profit margin would be diluted”.

Ms Jajoo however feels there is going to be no down trading by potential customers of existing car offerings. “It is not going to cannibalise from the existing four-wheeler market. It will capture from the two-wheeler market. If it captures just five per cent of the two-wheeler sales, which is 80 lakh per year, four lakh units will be the annual sales,” she said.

A research report put out by the broking house Edelweiss, put the volume at 3-4 lakh cars by comparing volumes of existing entry level cars and the prices at which these are offered and extrapolated it to the price point at which Nano would be sold.

The rating agency Crisil sees a huge consumer base from which potential customers for Nano would be drawn. “At present, it is estimated that 23 million people can afford a car while the actual number of car owners is 8-9 million. With the introduction of one-lakh car, the number of potential customers will rise to 38 million and the number of car owners may go up to 15 million,” said Mr Sachin Mathur, Head of Research, Crisil.

At expected consumer price of the car at around Rs 1.3 lakh, Nano brings down the cost of ownership of an entry-level car in India by 30 per cent, making a new car affordable to families with income level of Rs 2 lakh.

The new price point translates into a 65 per cent increase in the number of families that can afford a car. At the significantly redefined threshold for car ownership in India, annual car sales in India have the potential to increase by 20 per cent,” the Crisil report says.

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