Maruti, M&M good bets, neutral on Tata Motors: Nomura

Kapil Singh, Auto Analyst at Nomura has a buy call on Maruti Suzuki and M&M. He gave the target price on Maruti of Rs 2,259 per share and on M&M Rs 1,125 per share.

Further, he is expecting Maruti to see upside due to yen depreciation. Discussing on the reports, which came out yesterday about Jaguar Land Rover (JLR) margins, he told CNBC-TV18 that he expects JLR margins to be around 16.2 percent.  On the domestic front he feels that the company (Tata Motors) will be reporting Rs 450 crore loss. Over all Singh recommends avoiding two-wheeler space and is more positive on four-wheeler. Also read: Pick midcap IT now; bullish on Divis, Sun Pharma: HDFC Sec Below is the verbatim transcript of his interview to CNBC-TV18 Q: Expectations are all over the place with regard to the size of the domestic business loss. What do you think could be a reasonable number? A: We are looking at a loss of Rs 450 crore to come in on the domestic business from this quarter. Q: There were some whisper reports yesterday about Jaguar Land Rover (JLR) margins and the fact that they could be much below 16 percent mark most of the analysts have penciled in. Would you say there is a probability of that and what kind of reaction would the stock see if that was to happen? A: We are expecting around 16.2 percent margins for JLR. We think this is going to be a strong quarter for them given the strong mix from the new Range Rover and the highest quarterly volumes that we have seen. If the numbers come in below expectations, we could see negative reaction to that. However, we expect strong result to come out from them. Q: Even so you have a neutral rating on the stock, is that a function of the fact that you think the current price bakes in all the upside or you think there is more risk coming to the business? A: It has come closer to the fair value, which is around Rs 304. If one looks at the performance or valuation in comparison to other global names then it is close to where the others are trading. So, people look at JLR’s valuation and that is close to where the others are trading. The good performance has been baked in. Q: Maruti Suzuki had a great run off-late in the last few weeks but then the yen has turned volatile. Has that changed their view on upsides for Maruti from here? A: Not really because where yen is currently, it will lead to strong margin benefit for the company in the coming quarters. The results that we saw did not have full benefit of the depreciation that we have seen in the last couple of months on JPY-INR. Therefore, once those numbers come in we will see much stronger performance on margin side. We are expecting strong improvement in margins from the last reported levels. Q: What would you pick from two-wheeler bunch? A: We have been avoiding two-wheeler space. We have been more positive on four-wheeler space. The reason is that demand for the industry has been slow and in that environment Honda has been and will continue to remain aggressive this year. If that is the case then more of incremental demand might go to Honda. That will pose pressure both on volumes and margins of incumbents. Therefore, investors should still continue to avoid. Q: The one that had relatively consistent sales figures especially on the tractor side is Mahindra and Mahindra (M&M). How would you rate the stock and how would you expect it to do over the next few months? A: We are starting to see some signs of improvement in tractor demand. Tractors are a higher margin business for M&M. So, even if there is some slowdown on the utility vehicle (UV) side then stronger demand in tractor will cover up for that. We have a buy rating with target price of Rs 1,125.