Accumulate Tata Motors DVR; target of Rs 628: P Lilladher

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Accumulate Tata Motors DVR; target of Rs 628: P Lilladher

Prabhudas Lilladher is bullish on Tata Motors DVR and has recommended accumulate rating on the stock with a target of Rs 628 in its June 28, 2011 research report.

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Prabhudas Lilladher is bullish on Tata Motors DVR and has recommended accumulate rating on the stock with a target of Rs 628 in its June 28, 2011 research report.

"The average discount for the DVR to the Tata Motors' ordinary share was 32.8% since inception. The average discount for the DVR share over the last 18 months has been 36.4%. At the CMP, the DVR is trading at a 46% discount to Tata Motors' ordinary share, nearing its worst ever level of 49.4% in Feb'11. We believe at the current levels the probability of the discount narrowing is higher. DVR is trading at a valuation of 3.2x FY13E  EPS and 4.8x FY13E adjusted EPS (adjusted for R&D being expensed rather than capitalized). At the CMP, the dividend yield stands at an attractive 4.2%."

"Our base case target price (TP) for ordinary Tata Motors stands at Rs 1,163. Assuming a 42% discount, the derived TP for Tata Motors DVR stands at Rs 675, an upside potential of 26.8%. Assuming the current 46% discount continues, the derived value for DVR would stand at Rs 628, an upside potential of 18.0%. Globally, the discount widens due to dilution fears or corporate governance issues. In our recent interaction, Tata Motors management hinted towards converting the FCCBs maturing in July 2012 into DVRs. This could lead to an increase in supply of DVRs as compared to the ordinary shares resulting in higher dilution."

"The DVR has corrected 26.3% in the last 3 months compared to a 22.0% correction in the Tata Motors stock. We believe the current price has discounted all the negatives and the risk: reward has turned favourable. We recommend Accumulate on Tata Motors DVR stock," says Prabhudas Lilladher research report.

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To read the full report click on the attachment