Broking house, Sharekhan is bullish on Tata Motors and has recommended buy rating on the stock with a target of Rs 1004.
Sharekhan report on Tata Motors:
Key points
Tata Motors has announced that it is setting up a joint venture with a Thailand-based company, Thonburi, to manufacture, assemble and market pick-up trucks.
We believe that such a joint venture would be a win-win situation for both Tata Motors and Thonburi. The venture provides Tata Motors an entry into the Thai market, which is the world's second largest pick-up vehicle market. The market size for pick-ups in Thailand currently stands at 450,000 units and is expected to grow at a good pace going forward too. Tata Motors is targeting to sell 30,000 vehicles a year over three years.
Tata Motors is specially developing a pick-up vehicle for the Thai market with a 3.0-litre Dicor engine and is looking to price the model competitively. The vehicle would have an initial local content of 50% which shall be later scaled up to 80%.
Separately, Tata Motors and Fiat Auto have announced an agreement for the formation of a joint venture. The two companies would invest Rs4,000 crore to set up a facility in Ranjangaon to manufacture 100,000 cars and 200,000 engines and transmissions per annum. Fiat Auto would introduce its two vehicles in the B and C segments, and would also manufacture its "Fire" family engines through the venture.
Tata Motors would also benefit from the joint venture with the Italian company, as the same would provide it access to Fiat Auto's world-class powertrain technology. The engines produced through the joint venture may also be used for forthcoming models of Tata Motors, resulting in both time and money savings for the Tata group company.
At the current market price of Rs 863, the stock trades at 12.8x its FY2008 earnings and 8x its enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). We maintain our Buy recommendation on the stock with a price target of Rs 1,004.
