Hold Tata Motors; target of Rs 139: Prabhudas Lilladher

Prabhudas Lilladher recommended hold rating on Tata Motors with a target price of Rs 139 in its research report dated July 25, 2019.

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July 26, 2019 / 15:36 IST

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Prabhudas Lilladher's research report on Tata Motors

We downgrade TTMT to HOLD citing uncertainty in S/A and JLR led by key headwinds like a) Brexit uncertainty and b) weak demand in domestic markets. Consolidated performance for TTMT over Q1FY20 was below expectations, with margin disappointment at both JLR (OPM at 4.2% v/s PLe at 7.5%) as well as Standalone India business (OPM at 6.4% v/s PLe at 7.8%). With China stabilizing and expected to recover hereon, the management has reiterated their EBIT guidance for full year FY20E at ~3%. However, given Q1FY20 EBIT margins at -5.5%, along with Brexit uncertainties ahead, we feel this would be an uphill task (PLe of 2.3% in FY20). Standalone margins are expected to remain under pressure owing to the weakness in demand, uncertainties around pre-buy and increasing discounting, especially in the CV segment. We currently factor in 5%/6% volume growth for JLR with EBIT margins of 2.3%/4.2% for FY20/21E.

Outlook

We downgrade the stock to ''HOLD'' with the target price of Rs139, where we value JLR at 3x Mar'21E EV/EBITDA and Standalone entity at 8x Mar'21E EPS.

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