Nano Spells Huge Profits for Tata Motors

Thursday 26 March 2009, 00:00 AM by Satish Kalepu

Tata Motors has hit a pot of gold by launching Nano this March. The company is expecting 500,000 orders or bookings within first phase of booking itself. This means that company will be able to generate Rs. 5,000 crore within the first phase of booking. The company will also accumulate interest free deposit of Rs. 95,000 for the base model and Rs. 1.4 lakh for the top end variant. Bookings for the Nano may range from 120,000 during the first two-week sales period before 100,000 buyers are allocated by lottery.

“Tata Motors will need to sell many Nanos to break even. However, by leveraging the Nano platform, it can make high-end cars for overseas markets. With several variants, it could be a highly profitable product for the company,” said auto analyst with Booz & Company, Vikas Sehgal.

Global rating agency Standard and Poor’s has already placed Tata Motors to B+ from its earlier ratings of BB- which means that now the agency rates Tata Motors as a company that promises some assurance for its long term debt payments. The ‘BB-‘ ratings earlier indicated moderate security for future payments.

The commodity prices and the excise duty on small cars have also dipped in past few months which further adds to Nano profits as the car becomes more affordable to the people. The price tag is definitely within the reach of an average two-wheeler buyer or used car buyer which increases the market for Tata Nano. Tata Motors was banking on profitability two years from now, but MD Ravi Kant says the car will ring in profits from the word go. Besides this, Tata Motors also enjoys 10 year excise holiday in Uttrakhand which makes the car more feasible. The first 50,000 models roll out from this plant for Tata Motors. Lastly, it will also gain Modvat benefit which means the company will not have to pay tax on auto components as the supplier would already have done so.

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