BoA ML: Buy Tata Motors: raise Price Target to Rs 1210

Raise JLR forecasts, PO
Raise PO by 10% to Rs 1,210, driven by (1) an increase in consolidated EPS
forecasts by 8%-9% over FY11-12E, on stronger margin and sales visibility of
Jaguar Land Rover (JLR), and (2) re-alignment of stand-alone multiples to peers
at 8x EV/EBITDA FY12E (earlier 7.5x), slightly above mid-cycle multiple.
JLR estimates raised
Our revisions are driven by (1) an increase in sales estimates by 4%-5% over
FY11-12, to 240K-250K units, on likely easing of engine supplies in H2, and
launches, i.e., LR Evoque, (2) higher margin assumptions of ~14% over FY11-
13E (up 50bps), due to operating leverage and cost control. Our forecasts are
based on existing exchange rates, but volatile cross-currency movements will
impact profitability.
Cautious on cars, but positive on CVs
We have cut car volumes, and expect traditional portfolio (Indica/Indigo) sales to
remain flattish during forecast period (earlier 8% CAGR), due to diminishing
franchise and new competition. However, we reiterate our positive view on
Commercial vehicles (20% CAGR), aided by a growing portfolio in light vehicles
(1) Ace variants at entry payload of 0.5T, and 1T (Super Ace), and (2) passenger
models, Venture (compete with Maruti's Eeco) and Magic Iris (three wheeler
substitute).
Fund raising is a positive
Assuming the proposed equity raising plan (around $500mn) goes through, it will
lead to (1) sharp improvement in financial leverage ratios by end-fiscal (net
debt/equity at 1.1X, net debt/EBITDA 1.2x), and (2) lifting of overhang with further
issuances unlikely over the next year.