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Valuations attractive at P/E of 4.7x FY13E consolidated EPS
Tata Motors has corrected 42% YTD on the back of rising concerns in
the European region (debt crisis) where its subsidiary JLR has
substantial exposure. Furthermore, slowdown in the domestic auto
business added to the concerns. However, this correction has
brought the valuations to attractive levels. The stock currently trades
at P/E of 4.7x FY13E consolidated EPS of Rs169.6. We believe the
concerns are overdone and the risk-reward ratio is highly favourable.
JLR volume momentum to continue
After reporting a 25% growth in volumes in FY11, JLR has registered
a 9% volume growth in Q1 FY12. Most of the growth has been
contributed by strong demand in the emerging economies. While the
demand in the western world might remain weak, demand from
emerging economies such as China and India would continue. The
momentum might gather pace in H2 FY12 with the launch of Evoque
under the Range Rover brand (one of the most widely anticipated
launch). We forecast a 7.5% CAGR in JLR volumes during FY11-13E.
Contribution of JLR earnings to improve substantially
Over the past few quarters contribution of JLR to TML’s consolidated
operating profit has increased considerably. JLR’s improved
profitability has been on the back of 1) strong volume growth 2)
production re-structuring, 3) sourcing of lower cost raw material, 4)
reduced man power and 5) currency tailwinds. While the currency
factor is uncertain, other factors are here to stay, thus, lending
strong visibility to JLR margins.
Domestic business facing headwinds, but scenario to improve
YTD, TML’s domestic passenger car volumes have fallen 21.6%.
However, CV volumes which account for 60% of the volumes have
registered a 16% jump in volumes. With interest rates close to their
peak levels and recent correction in crude oil prices, affordability for
fleet operators would improve. Nevertheless, we are factoring in only
4.3% and 8.8% growth in volumes in FY12E and FY13E respectively.
Any recovery in passenger car volume would provide upsides to our
estimate and price target.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Valuations attractive at P/E of 4.7x FY13E consolidated EPS
Tata Motors has corrected 42% YTD on the back of rising concerns in
the European region (debt crisis) where its subsidiary JLR has
substantial exposure. Furthermore, slowdown in the domestic auto
business added to the concerns. However, this correction has
brought the valuations to attractive levels. The stock currently trades
at P/E of 4.7x FY13E consolidated EPS of Rs169.6. We believe the
concerns are overdone and the risk-reward ratio is highly favourable.
JLR volume momentum to continue
After reporting a 25% growth in volumes in FY11, JLR has registered
a 9% volume growth in Q1 FY12. Most of the growth has been
contributed by strong demand in the emerging economies. While the
demand in the western world might remain weak, demand from
emerging economies such as China and India would continue. The
momentum might gather pace in H2 FY12 with the launch of Evoque
under the Range Rover brand (one of the most widely anticipated
launch). We forecast a 7.5% CAGR in JLR volumes during FY11-13E.
Contribution of JLR earnings to improve substantially
Over the past few quarters contribution of JLR to TML’s consolidated
operating profit has increased considerably. JLR’s improved
profitability has been on the back of 1) strong volume growth 2)
production re-structuring, 3) sourcing of lower cost raw material, 4)
reduced man power and 5) currency tailwinds. While the currency
factor is uncertain, other factors are here to stay, thus, lending
strong visibility to JLR margins.
Domestic business facing headwinds, but scenario to improve
YTD, TML’s domestic passenger car volumes have fallen 21.6%.
However, CV volumes which account for 60% of the volumes have
registered a 16% jump in volumes. With interest rates close to their
peak levels and recent correction in crude oil prices, affordability for
fleet operators would improve. Nevertheless, we are factoring in only
4.3% and 8.8% growth in volumes in FY12E and FY13E respectively.
Any recovery in passenger car volume would provide upsides to our
estimate and price target.
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