General Motor’s (GM, Financial) stock is under pressure over the last couple of days after it announced across the board price cut in China for its Chevrolet, Buick, and Cadillac models. The company is facing increased competition from local players in China and according to a company spokesman “through the price adjustment, the selected products will consolidate their leading position in different segments, making them more attractive to consumers.”
In order to mitigate some of the impact from Chinese price cuts, GM is now focusing on India and aims to gain at least 5 percent market share over the next decade. The company sees India overtaking Japan as the world's third-largesst auto market by 2025.
In a recent interview Stefan Jacoby, GM's chief of international operations, told Reuters:
"India may be the last big white sheet of paper in the automotive industry.
We're pretty optimistic. We see growth potential in India, and believe there's a good opportunity for the Chevrolet brand to take share in this market. There's more prosperity and buying power. Vehicles selling for $5,000-$8,000 will more and more disappear in India."
The company aims to unleash a product blitz aimed at reviving slumping sales in the country. I believe management is taking the right strategic step by focusing on Indian expansion. The company is under a turnaround and its business is improving. It has now been profitable for 21 consecutive quarters. Last quarter, GM's business delivered strong core operating performance with almost all key operating metrics including global deliveries, net income and adjusted EBIT improving.
For FY2015, management is expecting adjusted EBIT and adjusted EBIT margins to improve in all automotive regions. For FY2016, the company's target is to reach 10% adjusted EBIT margins in North America, profitability in Europe and maintaining strong net margins in China.
The company is passing benefit of this strong performance to its shareholders and intends to raise its common stock dividend 20% to $0.36 per share from second quarter of the current year. This is over and above $5 billion in buy-backs announced earlier this month. At current valuations, the announced buy-backs will reduce GM's share count by 8.2%.
General Motors is trading at 8.22 times FY2015 EPS. The company has an attractive dividend yield of 3.20%. Out of 19 analysts covering the company, 11 are positive and have buy recommendations, six have hold ratings and two have sell ratings. The company's improving performance is attracting attention of sell-side analysts and some of the most successful fund managers. I believe General Motors offers a good value at the current levels.
