Buy Tata Motors; target Rs 370: Motilal Oswal
Motilal Oswal is bullish on Tata Motors and has recommended buy rating on the stock with a target price of Rs 370 in its October 01, 2012 research report.
October 01, 2012 / 18:42 IST
Motilal Oswal is bullish on Tata Motors and has recommended buy rating on the stock with a target price of Rs 370 in its October 01, 2012 research report.
Tata Motors Luxury vehicle market volume momentum remains intact. Top 4 players grew ~9.3% in FY13YTD (Apr-Aug) led by 21% growth in China. Luxury SUV (JLR's strength) growth remains robust across markets; FY13YTD, SUV volume growth is 40% for JLR and 18% for Mercedes Benz. Expect JLR's volumes to grow ~15% in FY13 leading the 13.4% CAGR over FY12-15E on the back of product expansion (40 product actions over 5 years) and further market penetration. JLR's China volumes should benefit from expected ~18% CAGR in the market over CY11-15, JLR's own dealer expansion and Chery JV enabling JLR to compete better with a production base in China.Likely bottoming out of IIP growth (1.4% in FY13, lowest since FY92), expected interest rate downcycle, and favorable macro impetus (e.g. FDI in retail) should augur well for M&HCV business. We expect Tata Motors' (TTMT) M&HCV volume to grow 10% in FY14, recovering from likely 12% de-growth in FY13. LCV volume momentum remains strong with ~20% growth in FY13YTD. Expect 15% CAGR in LCV volumes over 2 years, driven by SCVs.We expect Consolidated EBITDA margin to recover 50bp in FY14 to 14.2%. JLR's EBITDA margin should improve 60bp to 15% in FY14 on the back of better mix and operating leverage. We believe TTMT has multiple levers to support/improve margins over next 3-4 years. Our estimates for FY15 are yet to factor in any benefits from the Chery JV and own engine plant in UK & India. Our estimates suggest consolidated FCF generation of INR274b over FY13-15, despite investing ~INR600b, transforming it into a net cash company by FY15.We believe JLR is on the right strategic path and is investing in the right areas, resulting in its evolution to a much stronger and balanced player in the luxury vehicle market. The CV business, which contributes ~35% to fair value, is expected to witness recovery in FY14, resulting in significant improvement in standalone operations. We are upgrading our FY14 consolidated EPS by 8.1% to INR41.1 to factor in for improvement in JLR's product mix. The ordinary/DVR stock is currently trading at 8x/4.8x FY13E and 6.5x/3.9x FY14E consolidated EPS. Maintain Buy with revised target price of INR370 (FY14 SOTP based) for ordinary share and INR223 for DVR (40% discount to ordinary)," says Motilal Oswal research eport.Public holding more than 90% in Indian cos 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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