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Tata Motors (TAMO.BO)
Neutral Equity Research
Updating estimates and target price; retain Neutral on valuation
What's changed
We are revising our FY11E-FY13E EPS for Tata Motors by 2%-10% to
incorporate reported FY2011 sales volume. These changes are mainly
driven by higher revenue (about 15%) and margin assumptions vs. our
prior estimates at the overseas subsidiary, JLR. We make the following
observations: 1) We believe JLR could meet FY2011 management sales
guidance of 240,000 units, implying 26% yoy growth; and 2) We note that
domestic sales volume performance has been relatively mixed during
FY2011, as i) the passenger car division lost market share to new
competitors such as Ford, General Motors, and Volkswagen in FY2011; and
ii) in the CV and MUV segments, Tata Motors was able to gain back lost
market share over the last six months with new launches such as Winger
Platinum, Prima Construck range, and Aria.
Implications
We believe that the earnings upcycle for JLR could continue in the near
term given the turnaround in its product portfolio and strong luxury car
demand in regions such as China, US, and Europe. We also believe that
EV-based valuation is more appropriate for this company, given its
financial leverage, and the upcycle looks priced in, in our view, when
evaluated on parameters such as EV/IC, EV/sales, and EV/EBITDA.
Valuation
We retain our Neutral rating and revise our FY12E EV/EBITDA-based 12-month
target price to Rs1,186 (from Rs1,106) based on our revised earnings estimates.
Tata Motors is currently trading at a mid-cycle multiple of 5.3X FY12E EV/
EBITDA vs. DVRs at 3.9X (currently trading at 44% discount to common shares),
Indian auto coverage average at 7.7X, 3.4X for Europe and 5.1X globally.
Key risks
Upside – higher-than-expected sales volume and margins at JLR. Downside
– lower-than-expected sales volume and margins at JLR, low visibility of
detailed financials of JLR.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Motors (TAMO.BO)
Neutral Equity Research
Updating estimates and target price; retain Neutral on valuation
What's changed
We are revising our FY11E-FY13E EPS for Tata Motors by 2%-10% to
incorporate reported FY2011 sales volume. These changes are mainly
driven by higher revenue (about 15%) and margin assumptions vs. our
prior estimates at the overseas subsidiary, JLR. We make the following
observations: 1) We believe JLR could meet FY2011 management sales
guidance of 240,000 units, implying 26% yoy growth; and 2) We note that
domestic sales volume performance has been relatively mixed during
FY2011, as i) the passenger car division lost market share to new
competitors such as Ford, General Motors, and Volkswagen in FY2011; and
ii) in the CV and MUV segments, Tata Motors was able to gain back lost
market share over the last six months with new launches such as Winger
Platinum, Prima Construck range, and Aria.
Implications
We believe that the earnings upcycle for JLR could continue in the near
term given the turnaround in its product portfolio and strong luxury car
demand in regions such as China, US, and Europe. We also believe that
EV-based valuation is more appropriate for this company, given its
financial leverage, and the upcycle looks priced in, in our view, when
evaluated on parameters such as EV/IC, EV/sales, and EV/EBITDA.
Valuation
We retain our Neutral rating and revise our FY12E EV/EBITDA-based 12-month
target price to Rs1,186 (from Rs1,106) based on our revised earnings estimates.
Tata Motors is currently trading at a mid-cycle multiple of 5.3X FY12E EV/
EBITDA vs. DVRs at 3.9X (currently trading at 44% discount to common shares),
Indian auto coverage average at 7.7X, 3.4X for Europe and 5.1X globally.
Key risks
Upside – higher-than-expected sales volume and margins at JLR. Downside
– lower-than-expected sales volume and margins at JLR, low visibility of
detailed financials of JLR.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
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