Tata Motors Q1 numbers in line; buy on declines, say experts

Tata Motors Friday reported consolidated revenue of Rs 67,056 crore as against Rs 61,510 crore for the corresponding quarter last year, driven by strong sales volume growth in all regions for Jaguar Land Rover (JLR) and continued growth in M&HCV and LCV segments.

Operating profit (EBITDA - earnings before interest, tax, depreciation and amortisation) for the quarter was down by 18.1 percent to 672 million pound and margin contracted by 410 basis points at 12.3 percent, impacted by forex fluctuation and lower local market incentive.

Sharing his view in on the first quarter numbers and their outlook for the stock going forward Sanjiv Bhasin IIFL said the fall in the stock was becasue the stock had already rallied a lot adding that if levels of Rs 470-475 come then it would be a buying opportunity.

However, the numbers are in line and there is nothing to worry for long-term investors, said Bhasin in an interview to CNBC-TV18.Reiterating Bhasin's view, Parag Thakkar, HDFC Securities said the stock is a buy opportunity on any declines. It is the cheapest largecap stock in India at a market cap of Rs 1,40,000 crore, said Mehta. However, SP TUlisan of sptulisan.com said the numbers were dull and not comfortable at all.Below is the transcript of Sanjiv Bhasin, Parag Thakkar, Umesh Mehta, SP Tulsian and to Sonia Shenoy and Anuj Singhal on CNBC-TV18.Sonia: The numbers that we have, the crucial number is really the earnings before interest, depreciation and amortisation (EBITDA) margin which has come in at 12.3 percent, but that is because of a foreign exchange (Forex) fluctuation. Ex of that has come in at 14 percent. Your initial thoughts?Bhasin: Sonia, we were expecting that 14 percent would be the EBITDA margin. It is down from 14.9 percent on a year-on-year (Y-o-Y) basis. But leave aside the Forex loss, then it is in line. It is only that the stock had already run up a lot in anticipation of this and we are seeing a correction thereof. So, any fall towards Rs 470-475 would be a buying opportunity.Anuj: Your first thoughts on the numbers? The stock is recovering a bit now.Tulsian: Numbers are looking dull because if you really see, the company has booked an other income also of Rs 490 crore of that Chinese port, of the claim which they have received now. So if you just knock that off, even the profit after tax (PAT) will be much lower. I have not gone through honestly the details of the segmentwise and the other expenses are also looking quite high to the extent of Rs 15,000 crore. So, whatever overall I could be able to analyse, that number is not looking comforting at all.Anuj: For Tata Motors, valuation comfort is there. You want to make a point on that?Thakkar: 14 percent margins are okay, they are widening their portfolio and the newer products are lower margin products. So, the fact that these products are received well is reflected in the revenues. Anuj: Globally it is among the cheapest auto stocks despite the kind of run that we have seen.Thakkar: And it is the cheapest stock in India in the largecap stocks. Rs 1,40,000 crore market cap, net automotive debt is zero, consolidated and you have an EBITDA of Rs 40,000 crore. Even if you knock off that Rs 7,500 crore which they capitalise, research and development (R&D) part, EBITDA is Rs 33,000 crore.Sonia: Also, another thing is they are going to start manufacturing in China, they are going to start the Jaguar XF as well. So, as they increase the manufacturing of products locally in China, their operational performance will improve further.Thakkar: Their Chinese joint venture has also started doing well. So if there is any fall in Tata Motors, it is a buying opportunity.Sonia: You want to give us a quick comment on how you have read into the JLR numbers and your expectation on the stock hereon?Mehta: Brexit is gone and that one off event that market will forget it. The growth in numbers, core strengths, 10 percent growth in top line and Jaguar is really developing in China. The fear last year that we had that Chinese devaluation will cause a lot of problems and there is degrowth and China is not growing, so that perception has changed. The way company has reported numbers, in short, the numbers are in line and there is nothing to worry from a long-term investors perspective, but short-term yes, because there was run-ups in the last three months, the stock price is at higher end of the price-earnings ratio (P/E) multiple valuation. So, in the last five years, the P/E multiple had never gone above 12-12.5, so the average is around 10. So, to that extent, that is a slight over valuation in the short to medium term, but on an on, the stock is great in terms of diversification in an automobile sector.Sonia: Over a one-year time horizon, how much do you think the returns could be on Tata Motors? I ask you this question because we have already seen a 70 percent return in the last six months. Is there is a P/E expansion you see post these numbers?Thakkar: Yes, I would say that definitely, I would look at it on an absolutely basis because at 4-4.5 times enterprise value (EV) EBITDA. Such a business with Rs 3 lakh crore topline, Rs 40,000 crore EBITDA and growing and growing in double digits as you rightly said. It deserves a higher multiple no doubt about it. So, I was even bullish at Rs 280 where it fell because of the Euro concerns and even now I am bullish.Anuj: We have seen that the JLR topline number is quite good. The margins have been impacted because of pound issue, but at Rs 503, for someone who has missed out on Tata Motors what is a good entry point?Bhasin: The day the Brexit happened, it hit a low of Rs 420. It has not come to revisit that. We had a one year target of Rs 520-530 and that got achieved in the month of August. So, we have across the board have booked profits. We will revalue it once the froth is over. Secondly, we are also slightly sceptical on the market at 8,700. We think next week onwards, you can see a sharp decline and we would only revalue the work once the Nifty corrects. So, 8,200-8,300 would give us comfort to buy. Whether it is at Rs 450 or Rs 470, that would be a night. We are not going to chase the stock even though earnings and JLR has played out well. We know the Slovakia unit will be another plus point, but it is all in the price. I would not want to give it a higher multiple. Rs 450-470 for the longer term would be a good point. That would also tantamount that there will be a correction in the market which will give you a better buying opportunity.