Buy Tata Motors; target of Rs 442: LKP
LKP is bullish on Tata Motors and has recommended buy rating on the stock with a target price of Rs 442 in its November 11, 2013 research report.
November 12, 2013 / 16:05 IST
LKP's report on Tata Motors
"Tata Motors consolidated sales were up by 30.1 percent yoy, and 19.1 percent qoq in Q2 FY14. JLR performance was the focus area as usual with sales growing by 40.2 percent yoy to GBP4.6 bn, and 12.5 percent qoq as sequentially the volumes went up by 12.5 percent. On a yoy basis, JLR volumes went up by 31.6 percent to 101,931 units as geographies like China, UK and ROW showed a good traction along with improved sales performance at Jaguar brand (up 91.5 percent yoy). JLR also posted a very good margin performance with EBITDA margins coming at 17.8 percent on improved product mix (higher new RR and RR Sports sales), geography mix tilting towards China, and a GBP79 mn incentive from UK government towards R&D. We believe this incentive to be a recurring one (GBP 40 mn in Q2 FY13) as it comes once in a year in Q2. On the other hand, slowdown in MHCV sales and underperformance of the PV segment led to losses piling up at the domestic business. Volumes in the quarter fell by 31 percent yoy and 1 percent qoq thus pulling the sales down by 29 percent and 3 percent yoy and qoq respectively. The standalone EBITDA margins were as miniscule as 0.9 percent in line below 1.2 percent sequentially. Standalone business was impacted by weak CV cycle, low demand, higher discounts and a dragging PV business. Standalone net profits came in at a loss of Rs 8.04 bn, Net profits at the consolidated level came in at Rs 35.6 bn, a growth of 71.5 percent yoy."Outlook and valuation: "The company is expected to continue its outperformance on the JLR front which is the chunk of their business and was more than 100 percent of their net profits in Q2. Emerging geographies like South America, China, Russia etc. are expected to drive the revenues going forward. New launches such as the Range Rover and RR Sports along with the pipeline of new launches are supposed to put up a good volume performance. We raise our JLR estimates and expect a 14 percent/13 percent JLR volume growth in FY14E/15E. We expect some revival in the domestic MHCV business on economic recovery in the sight in the second half of the year or FY 15 along with some demand built-up for UVs during elections in May 2014. On the back of expectations of strong JLR margins on China demand, expansion of dealerships over there, buoyant product pipeline, we expect the company to turn FCF positive this year onwards, despite the company maintaining their heavy capex guidance. We are increasing our margin estimates too on the factors mentioned above. On the back of it, we are now raising our target price from Rs 387 to Rs 442. Maintain BUY," says LKP 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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