Buy Tata Motors; target Rs 397: FinQuest Securities
FinQuest Securities is bullish on Tata Motors and has recommended buy rating on the stock with a target price of Rs 397 in its June 13, 2013 research report.
June 17, 2013 / 12:44 IST
FinQuest Securities' research report Tata Motors
"Tata Motors reported a good set of numbers for Q4FY13. The consolidated sales was up by 10 percent Y-o-Y and 21 percent sequentially in Q4FY13, mainly driven by strong sales of Jaguar Land Rover (JLR). JLR volumes grew by 19 percent Y-o-Y and 22.7 percent sequentially to 116,340 units, while JLR EBITDA margins expanded by a whopping 230 bps Y-o-Y and 290 bps sequentially to 16.9 percent in quarter. JLR volume uptick was mainly driven by Jaguar whose shipments shot up by over 50 percent Y-o-Y. The higher mix of AWD variants of Jaguar models including the new Jaguar XF sportsbrake model, coupled with sharp rise in volumes of the new Range Rover resulted in the uptick of the overall ASP of JLR both sequentially and Y-o-Y. Better geographical mix and currency gains also aided strong realizations and margins. If not let down by the standalone entity whose revenue nose dived 32.5 percent Y-o-Y and EBITDA margin contracted by 709 bps to 2 percent, the overall performance would have been much better.""The domestic business has deteriorated off late. Even though EBITDA have recovered sequentially by 62 bps to 2 percent TML has continued its loss making streak even in this quarter. Both CV and the passenger car business have been a drag for the standalone entity. The cyclical downturn has hit the CV market badly and since TML is the market leader it has been worse off. The sluggish domestic passenger car industry coupled with TML losing significant market share has impacted its passenger car business. However we believe the CV market should start to turn around as the economic activity improves. On the passenger car front, we believe the pain to continue for few more quarters as the steps taken by the new top management on the quality/servicing part would take some time to percolate while planned model refreshes/variants could add some incremental volumes in the next couple of quarters. The company is also spending Rs 30bn on new product development which is a positive sign.""Valuation & Rating: We continue to value JLR at 8x FY15E P/E while we value the parent at an P/E 10x FY15E earnings. We reiterate our Buy rating on TML, while we revise our earlier target price upwards from Rs 362 to Rs 397 on the back of robust performance from JLR. We have modeled for FY14E/FY15E earnings of Rs 31.8 and Rs 36.3 respectively. TML would be impacted by higher capex by JLR GBP 2.75bn and the standalone entity (Rs 30bn) which would impact the free cash flow negatively while also resulting in higher depreciation in FY14 and FY15. Even though the parent might report losses in the next couple of quarters we are bullish on the performance of JLR driven by the strength of JLR's portfolio, higher contribution from China and high ASPs of the upcoming models," says FinQuest Securities research report.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. 
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