Reliance Money has recommended a sell rating on Tata Motors, with 12-month price target of Rs 235, in its report dated June 30, 2009.

"Tata Motors’ (TAMO) long term debt on a consolidated basis went up to Rs 163 billion in FY09. In addition to it the company has raised NCDs for Rs 42 billion and it also raised $ 1 billion for JLR for working capital requirements. TAMO has charged actuarial loss for JLR pension plan of Rs 14.57 billion to Reserves which along with losses incurred during FY09, impacted consolidated net worth and book value at consolidated stood at Rs 113 per share compared to current estimated debt levels of Rs 240 billion. We believe the debt equity ratio for FY10E to become >2x and apart from this the company is also likely to raise debt on JLR books which would increase leverage risk going ahead."

"We believe CV industry would continue to face pressures in FY10E mainly due to slowdown in overall economy, lower industrial production and stringent financing norms. We also don’t expect any immediate revival in JLR sales volume in FY10E. We estimate TAMO to report EPS of Rs 14 and Rs 19 for FY10E and FY11E respectively. At current market price of Rs 314, the stock trades at a PE multiple of 23x and 16x for FY10E and FY11E respectively. We value TAMO at Rs 194 (10x FY11E) and other subsidiaries at Rs 40 (including JLR). We recommend a 'SELL' on the stock with a target price of Rs 235," says Reliance Money's report.

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