Due to production constraints, the company has not yet delivered the Tata Nano to its selected 1 lakh customers, which may delay its open market sale by a few months
Tata Motors Ltd, India's largest vehicle manufacturer, is yet to finish deliveries of its Tata Nano to its first 1 lakh selected customers. During June the company delivered over 250 Nanos per day to customers from its new Gujarat-based Sanand facility. However, since the Sanand plant is increasing its capacity in a phased manner there are limitations on the number of Nanos available for delivery. This will also delay the open market sale of the Nano by a few months.
While there are reports that the Nano is available in the open market under the management quota, a company official said that it will make appropriate announcements on future sales of the car.
Tata Motors' Sanand facility, which has a capacity to produce 2.5 lakh Nanos per annum, became operational last month. "The new Sanand plant has begun commercial production, and despatches from the plant have begun in June 2010. Its capacity is 250,000 (vehicles) per year and the ramp-up will be done in phases. At present, the Pantnagar plant continues to supplement (production of the Nano at) Sanand," the official said.
Although the company has not provided any figures, according to media reports, till June end, Tata Motors may have delivered 45,200 Nanos out of the one lakh orders. The company's plant at Pantnagar in Uttarakhand has a capacity to produce about 50,000 Nanos per year or about 4,200 Nanos per month.
Tata's Sanand plant, although operational, has not yet reached its peak. According to a PTI report, vendors of Tata Nano are currently supplying components for an average of about 10,000 units a month. Vendors have been told to scale up supply by three times by March 2011, the report said.
According to a report by the Society of Indian Automobile Manufacturers (SIAM), during June, Tata Motors produced 6,019 units of the Nano, taking its total production in the first quarter to 14,911 units. Similarly, during the month, Tata Motors sold (delivered) 7,704 units of the Nano, taking its total sales during the first three months of FY11 to 14,779 units.
While the company is talking about increasing production capacity at Sanand in phases, actual deliveries and production figures provided by SIAM tell another story. Tata Motors may be receiving over 4,000 units of the Nano from its Pantnagar plant, during June, its Sanand plant produced only around 2,000 units. In this scenario, even if the company ramps up capacity at Sanand, actual delivery to the first selected 1 lakh customers is likely to take a few more months. This also means that the Tata Nano will not be readily available off the showroom in the near future.
The car was a huge hit among the middle class, with almost 2,03,703 people going for the advance-booking route in June last year. At that time, Tata Motors shortlisted 100,000 owners through a computerised random selection process. The company had claimed that the cars are 'price-protected and people will get their dream vehicles at ex-showroom price'. In addition, there was a waitlist of 55,021 customers.
"On 23 June 2009, Tata Motors had declared 100,000 selected customers. The deliveries began in July 2009. The 7,704 cars sold in June 2010 are part of this ongoing delivery process to the allottees. Our objective is to complete this expeditiously. The company will make appropriate announcements on future sales of the car," the company official said.
SIAM categorises both the Tata Nano and Maruti Suzuki India Ltd's Maruti 800 in the 'A1 mini' segment. Despite non-availability of the Nano in the open market, Maruti 800 has not been able to take any advantage. During the first quarter to June end, Maruti Suzuki sold 6,906 units of the Maruti 800, compared with 7,119 units during the same period last year.
During FY10, Maruti Suzuki -a subsidiary of Suzuki Motor Corp - sold just 33,028 units of Maruti 800, down 33% from the previous year. At the same time, the company's other vehicles in the 'C' category continue to display good results, 30% higher than a year before. So the question arises, where are the middle-class buyers who were looking out for a low-cost car?
The answer could lie in the sales figures of either 'C' category car sales or higher sales of two-wheelers. During FY10, Hero Honda's sales were up 23.6% to 46,00,130 units while Bajaj Auto's sales were up 30.8% to 25,11,600 units. This means that the migration of customers to low-cost cars from two-wheelers that was supposed to take place did not materialise.
Although Tata Motors is not yet ready to give any assurance for the open market sale of the Nano, looking at the production scenario, we can assume that this will happen before the Dussera-Diwali festival period.
The truckers are protesting the hike in diesel prices and the government’s toll policy
All India Motor Transport Congress (AIMTC) today threatened that truckers will go on an indefinite strike from 1st August in southern India to protest the hike in diesel prices and the government's toll policy, reports PTI.
"Representatives of Southern India Motor Transport Association (SIMTA) have decided to stop operations from mid-night of 1 August, 2010, and AIMTC will also join SIMTA if no action is taken by the government," the transporters' body said in a statement here. SIMTA is part of the all-India body.
The opposition National Democratic Alliance (NDA) and the Left parties had called for a “Bharat Bandh” on 5th July to protest the recent hike in fuel prices.
Following the hike last month, petrol, diesel and kerosene rates have gone up by Rs3.50, Rs2 and Rs3 a litre, respectively.
In an environment of herd mentality, it is refreshing to see completely different viewpoints on Sesa Goa Ltd from two respected brokerages. CLSA is incredibly bearish and IDFC very bullish. Where could the stock be headed?
A very negative environment in iron-ore pricing (after China's removal of export rebate for steel) has been putting pressure on Sesa Goa, India's largest exporter of iron ore in the private sector. However, despite a negative breakout on 29th June, the stock has not broken below the Rs345 level (take a look at the attached chart). Technical analysis shows that if the stock breaches the Rs345 level, it could fall to Rs315. However, if it sustains above this, it could touch Rs400. Interestingly, CLSA India is extremely bearish on this company and has come out with a report today cutting estimates sharply, while IDFC is very bullish. So where could Sesa be headed?
Sesa Goa has some incredible positives - good cash flow, volume growth (mostly from Orissa and Karnataka), reserve addition through acquisitions such as Dempo, and apparently cheap valuations. A recent IDFC research report says its current market price of around Rs350 implies steady state realisation of $47 per tonne for iron ore reserves, which is 70% lower than the spot price and also below the 5-year average contract prices ($65). IDFC pegs Sesa's EV/EBITDA at 1x FY12, lower than peers.
But there are a lot of things that could go wrong for this stock:
(1) The management has a sales volume target of 50 million tonnes per annum (mtpa) for FY12 but they could easily fall short of this (current sales at 21mtpa) since this ramp-up is dependent on too many clearances, mainly environmental.
(2) Most positive reports on the stock assume that the bargaining power will remain with iron ore suppliers over the next few years, especially after the Rio and BHP joint venture. However, recent events have shown that if China continues its strategy of rationalising production of steel, this balance may soon tilt in favour of buyers - and there is no doubt that China has incredible influence as a resource buyer. Sesa sells most of its products in the spot market and would be adversely affected.
(3) Another perceived positive that could easily turn into a major negative is Sesa's acquisition potential. Sesa will probably be sitting on about Rs210 billion in cash and have a net-worth of around Rs240 billion by FY12 (IDFC estimates). However, even in a falling iron ore price environment, any acquisition that it might make in the next two years has the potential to be expensive - this is because iron ore prices are still at unprecedented highs and nowhere near a value zone as far as acquisitions are concerned and secondly, if it is a global acquisition, it will face tough competition from bigger players, which will only drive up prices.
(4) Another risk that is often taken lightly by the market is regulatory risk. The steel ministry has been lobbying for a ban on iron ore exports not on the grounds of shortage, but on the grounds of 'non-renewable resource for the local industry'. Interestingly, this is the reason why China does not promote iron ore exports. Another regulatory risk is environmental clearances or a resource tax on Indian miners. Other risks include even more stringent measures from China to ban low grade iron ore (Sesa's grade is not as good as NMDC's).
CLSA's recent report believes that supply will outstrip demand much sooner than expected (in the second half of 2010 itself) as many projects go on-stream and China's steel demand is likely to slow down very sharply to just 4% in 2011 after the withdrawal of the stimulus.
It is very clear that Sesa is very sensitive to news from China but it is also sensitive to the movements in our broader market. If the Nifty fails to sustain above the 5,400 mark, we could see pressure in the overall market and Sesa would be no exception. However, if the broader market keeps outperforming, Sesa could very well outperform, unless there is some fresh negative news from China.
Sesa Goa operates in Goa, Karnataka and Orissa. In the past couple of years, it has also started manufacturing pig iron and metallurgical coke.