Tata Motors- DVR - Waiting for acceptance:: Emkay

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Tata Motors

DVR - Waiting for acceptance

BUY

CMP (Ord / DVR) : Rs1,233 / Rs 688                                        Target Price (Ord): Rs 1,520

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n     TML’s DVR is trading at attractive valuations of FY12E PER/EV-EBIDTA of 4.1x/3.3x, offers ~9% div. yield (over 15 months) and trades at a disc. of 44% to the ordinary share

n     Barring Korean companies, the 44% discount for TML’s DVR is on the higher side when compared to the DVR of other companies  across geographies, market cap and sectors

n     While an increase in free float of DVR reduces the discount (recent case being Volkswagen), in the case of TML, the discount has actually widened

n     Expect discount to reduce (to atleast 30%) over the next one year given the attractive valuations and increasing free float. Maintain BUY on Tata Motors, with a preference for DVR