Motilal Oswal: TATA MOTORS: Sep-10 volumes below estimates

TATA MOTORS: Sep-10 volumes below estimates; Up 23% YoY (~2% MoM decline) to 64,668 units; Buy 

-          Total volumes grew by 23% YoY (~1.9% MoM decline) to 64,668 units (v/s est 77,800 units), driven largely by CVs.

-          Domestic CV portfolio grew 13% YoY (~0.4% MoM) to 35,734 units driven by 28% YoY (~12% MoM) growth in M&HCV volumes and 3.5% YoY growth (~7.9% MoM decline) in LCV volumes. CV volumes are below our estimates of 46,000 unit (including exports).

-          Domestic car volumes grew by 30% YoY (~7.8% MoM decline) to 20,561 units, driven by strong demand for Indigo range. While Indica range sales de-grew by 37% YoY to 6,258 units, Indigo range sales grew by 248% YoY to 8,783 units due to encouraging response to recently launched Manza. Nano volumes were disappointing at 5,520 units (v/s 8,103 units in Aug-10 and 9,000 units in Jul-10).

-          UVs grew 39.7% YoY (~15% MoM decline) to 3,316 units.

-          Exports improved 76.6% YoY (~1.9% MoM decline) to 5,057 units. We await break-up of exports.

-          Tata Motors has raised prices of CVs by Rs40,000 and cars by Rs14,000 to pass on higher RM costs on account of BS III norm implementation from Oct-10.

-          We will revisit our volume assumptions, especially for cars. Our estimates factor in volume growth of 31% in FY11 (implying residual monthly run rate of 82,795 units, residual growth of 26%), 270bp increase in RM cost and further improvement in JLR performance (~14.0% EBITDA margins in FY11 and 13.8% in FY12).

-          The stock trades at 9x FY11E consolidated EPS of Rs120.5 and 7.8x FY12E consolidated EPS of Rs140.6, and normalized PE (adj. for capitalization) of 17x FY11E and 12.8x FY12E. Maintain Buy.