Buy Tata Motors; target of Rs 277: FinQuest Securities

FinQuest Securities is bullish on Tata Motors and has recommended buy rating on the stock with a target of Rs 277 in its August 14, 2012 research report.

“Tata Motors Limited (TML) reported a decent set of numbers for Q1FY13. TTMT's consolidated total income rose 29% Y-o-Y to Rs 433.2bn in Q1FY13, led by robust growth in JLR volumes (up 34% Y-o-Y) but was slightly pulled down by standalone business (up 11% Y-o-Y). Realizations were flat sequentially for JLR but were lower in case of standalone business due to an adverse product mix. EBITDA margin expanded 67 bps to 13.3% on the back of flattish ASPs and favorable forex. JLR had made accounting adjustments for tax provision, deferred tax asset credit in Q4FY12, thus resulting in a higher tax rate in Q1FY13. This impacted the consolidated PAT as it grew by just 12.3% to Rs 22.4bn.”
“Even though there might be pressures on the margin front in the near term it is expected to be more due to model phase outs rather than lack of demand, however low demand in developed world could impact some volumes of JLR. We are quite optimistic on the JLR's product cycle in the long term, and with the introduction of new models, sales momentum should pick up from Q3-Q4FY12. Additionally, upside levers such as operating leverage, improvement in product mix from Q3-Q4, and favorable currency should leave little downside risk while margins could surprise the street positively. On the standalone front, subdued CV market coupled with TML's loss of market share in both CV and passenger car segment could continue to put pressure on margins going ahead.”
“The sales and EBITDA margins are expected to be subdued due to near term model churn in case of JLR, growth should pick-up from Q4FY13. We continue to value JLR at 3.5x FY13E EV/EBITDA while we value the parent at a P/E 8x (slightly lower compared to our earlier 9x) taking into account the slowing CV market and increased competition in the passenger car space. We reiterate our Buy rating on TML, but however revise our earlier target price downwards from Rs 300 to Rs 277. We have modeled for FY13E/FY14E earnings of Rs 42.3 and Rs 52.4 respectively. TML continues to trade at 5.6x FY13E earnings which is relatively cheap compared to its domestic and global peers. Even though there might be near term pain in the next quarter TML could offer significant upside if margins expand arising out of new models which command higher ASPs,” says Finquest Securities research report. See which companies promoters have reduced stake in last quarter? Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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