Sept. 18 (Bloomberg) -- A Brazilian law designed to fight soaring auto theft may triple the number of local customers for Ituran Location and Control Ltd.'s tracking service, according to Eyal Sheratzky, the Israeli company's co-chief executive officer.

Ituran may boost its Brazilian client base to 500,000 in five years, Sheratzky said in an interview from his office in Azour, Israel. That would mean an average annual addition of 70,000 customers, 75 percent more than the current rate.

Brazil is Ituran's second-largest market after Israel. The company trails only Westwood, Massachusetts-based LoJack Corp. in tracking-system sales in the South American country.

``The potential is huge,'' said Sheratzky, 39. ``As long as the regulation is enforced, the numbers will increase dramatically.''

All newly registered vehicles must have a tracking system installed by next August, under a rule passed in 2007. Brazil's vehicle fleet totaled 52.1 million at the end of June, according to the National Transit Department. The nation is adding 2.5 million new cars a year, while only one in 10 has a locater system, Sheratzky said.

Brazil's car theft rate is triple that of the U.K. and U.S., with 15 vehicles stolen out of every 1,000, said Paul Burnley, a researcher at SBD in Northants, England. Fewer than half of the autos are recovered.

Satellite Radio

While LoJack uses a terrestrial radio network to locate stolen cars, Ituran's system uses both land- and satellite-based receivers, reducing recovery time, said Jim McIlree, an analyst at Collins Stewart in New York.

Ituran may increase sales in Brazil by as much as 25 percent a year with the enforcement of the new law, said McIlree, who advises holding the shares. Total revenue at Ituran is projected to grow 13 percent this year from $124.8 million in 2007, according to the average of six analyst estimates compiled by Bloomberg. Sheratzky declined to give a sales forecast.

The sensors transmit an alert from a stolen vehicle to a call center, which then attempts to locate the car and sends agents to retrieve it with police. The technology allows the company to switch off a car's engine remotely, Sheratzky said. That's useful in Brazil, where vehicle thefts often involve carjacking.

The shares, which are traded in Israel and the U.S., had fallen 44 percent before today from their all-time high in 2006 on the Nasdaq Stock Market. Seven analysts advise buying Ituran, two say to hold, and none recommends selling.

LoJack has slumped 72 percent in the period. Spokesman Paul McMahon wouldn't comment on the U.S. company's Brazilian business.

$15 a Month

Ituran rose for the first day in six in New York, gaining 3.1 percent to $10.82. It was the biggest increase in almost two months and gives the company a market value of $242 million. LoJack added 14 cents, or 1.9 percent, to $7.43 for a market value of $129 million.

Ituran sells and leases tracking devices and gets monthly fees from uninsured individuals, who make up half of all vehicle owners in Brazil, as well as from insurance companies. The systems cost $400 to $500 each, while subscribers pay about $15 a month for the tracking service, Chief Financial Officer Eli Kamer said on a conference call last month.

``It's the razor-blade business,'' said Larry Sarbit, founder of Sarbit Asset Management Inc. in Winnipeg, Manitoba. ``It's an ongoing revenue stream.'' The firm owns 458,350 shares, or a 2.1 percent stake. It is Ituran's fourth-largest investor, excluding company directors.

The operating profit margin at Ituran rose in each of the past four years, data compiled by Bloomberg show. It reached 19 percent in the first half, compared with 3.3 percent for LoJack, which generated 67 percent of last year's sales in the U.S.

`Some Uncertainty'

Brazil accounted for about 34 percent of Ituran's second- quarter revenue, said Oscar Gruss & Son analyst Ziv Tal in Tel Aviv. Ituran's Brazilian market share is about 24 percent, compared with 36 percent for LoJack, he estimated.

Ituran's success in Brazil will depend on contracts with car insurers and manufacturers, leaving the company vulnerable to possible regulatory and policy changes, Tal said.

``We can't check off this box yet,'' said Moshe Rabanian, a Tel Aviv-based fund manager at Excellence Nessuah Mutual Funds Management Ltd. Regulatory filings from May and June show the firm added Ituran shares. ``There is still some uncertainty.''

Daniel Johnson, a Louisville, Kentucky-based analyst at River Road Asset Management LLC, said he prefers Ituran to LoJack because of the latter's exposure to the slowing U.S. economy. River Road added 234,380 Ituran shares, for a total of 1.2 million, or 5.4 percent, according to a June regulatory filing. It doesn't own any LoJack shares.

Baupost Purchase

Five of Ituran's 10 largest shareholders, excluding company directors, reported buying last quarter. Boston-based hedge fund Baupost Group LLC increased its holding to 5.7 percent, according to a June filing.

Elaine Mann, a spokeswoman at Baupost, declined to comment on its Ituran holdings.

Ituran has more than tripled since it was listed on the Tel Aviv exchange in 1998. Its tracking system is derived from technology developed to rescue Israeli Air Force pilots shot down in enemy territory. The company was bought in 1995 by a group of investors led by Izzy Sheratzky, Eyal's father, from Tadiran Ltd., an Israeli telecommunications company. Eyal became co-CEO in 2003, sharing the helm with brother Nir.

The company may use its $67 million in cash to make an acquisition in Brazil, Eyal Sheratzky said. Other countries where he is considering a purchase include Mexico, Russia, Poland and South Africa, the executive said.

``Ituran's market is not influenced by a recession,'' he said. ``Where there is a recession, there is more crime. When there is more crime, there is more need for our services.''

To contact the reporters on this story: Alisa Odenheimer in Jerusalem at aodenheimer@bloomberg.net; Kari Lundgren in London at klundgren2@bloomberg.net

Last Updated: September 18, 2008 16:35 EDT