Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
With the stock down sharply on premium car demand worries, Tata Motors' risk/reward looks
attractive, implying a near-zero value for JLR. The high sensitivity to premium demand is a valid
concern but, with debt-to-equity low, its investments in expanding into mass segments position it
well for growth. Buy.
European premium car demand is not highly cyclical; new JLR products offer promise
Since European debt concerns reemerged a month ago, European premium carmaker stock
prices have corrected 30% on concerns over demand, and other carmakers such as Tata Motors
are down in sympathy. However, our European auto analyst Jose Asumendi remains positive on
premium car demand as, in the previous two cycles in the past two decades, demand never
corrected more than 20% and recovered promptly. Nonetheless, given the high reliance of Tata’s
JLR unit on Europe (45% of FY11 sales), we cautiously trim our JLR FY12-13F sales by 3-6%,
maintaining our view that its new Evoque and XF models will be the key volume drivers. Building
in our expectation of margin pressure from launch expenses and a higher tax rate, we trim our
consolidated EPS around 12% for both FY12F and FY13F.
Valuations near FY09 low levels overlook its improved financials to handle crisis
On Tata Motors’ sharp correction, its valuations are approaching its lows of FY09 on 1-year
forward EV/sales and P/BV. In our view, this overlooks the upturn in its fundamentals (eg,
consolidated net debt cut by a third, taking net debt-to-equity to below 1; JLR now self-sufficient
on cashflow) that should help it withstand the tough macro environment. With both the parent and
JLR expanding products into mass segments, we expect the capex and R&D investments to
extend the improvement in ROE in the coming years. We reduce our TP to Rs1,088.5 to reflect
our EPS revisions and, for the subsidiaries, lower comparable valuation multiples. The easing
commodity prices and cross-currency movements are a key risk.
High EPS sensitivity to premium car demand does not justify near-zero value for JLR
On our new estimates, our standalone DCF valuation is Rs660/share, which implies that the
current share price values JLR at close to zero to discount for its volume risk. Our sensitivity
analysis suggests that, all else being equal, a 10% dip in JLR sales volume would lower JLR PAT
by 27% and consolidated EPS by 20%. However, in our view, this still does not justify a near zero
value for JLR, which generated EBITDA of US$670m in 1QFY12 and has low gearing at 0.2x. We
believe Tata Motors’ risk/reward is favourable and reiterate our Buy call.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
With the stock down sharply on premium car demand worries, Tata Motors' risk/reward looks
attractive, implying a near-zero value for JLR. The high sensitivity to premium demand is a valid
concern but, with debt-to-equity low, its investments in expanding into mass segments position it
well for growth. Buy.
European premium car demand is not highly cyclical; new JLR products offer promise
Since European debt concerns reemerged a month ago, European premium carmaker stock
prices have corrected 30% on concerns over demand, and other carmakers such as Tata Motors
are down in sympathy. However, our European auto analyst Jose Asumendi remains positive on
premium car demand as, in the previous two cycles in the past two decades, demand never
corrected more than 20% and recovered promptly. Nonetheless, given the high reliance of Tata’s
JLR unit on Europe (45% of FY11 sales), we cautiously trim our JLR FY12-13F sales by 3-6%,
maintaining our view that its new Evoque and XF models will be the key volume drivers. Building
in our expectation of margin pressure from launch expenses and a higher tax rate, we trim our
consolidated EPS around 12% for both FY12F and FY13F.
Valuations near FY09 low levels overlook its improved financials to handle crisis
On Tata Motors’ sharp correction, its valuations are approaching its lows of FY09 on 1-year
forward EV/sales and P/BV. In our view, this overlooks the upturn in its fundamentals (eg,
consolidated net debt cut by a third, taking net debt-to-equity to below 1; JLR now self-sufficient
on cashflow) that should help it withstand the tough macro environment. With both the parent and
JLR expanding products into mass segments, we expect the capex and R&D investments to
extend the improvement in ROE in the coming years. We reduce our TP to Rs1,088.5 to reflect
our EPS revisions and, for the subsidiaries, lower comparable valuation multiples. The easing
commodity prices and cross-currency movements are a key risk.
High EPS sensitivity to premium car demand does not justify near-zero value for JLR
On our new estimates, our standalone DCF valuation is Rs660/share, which implies that the
current share price values JLR at close to zero to discount for its volume risk. Our sensitivity
analysis suggests that, all else being equal, a 10% dip in JLR sales volume would lower JLR PAT
by 27% and consolidated EPS by 20%. However, in our view, this still does not justify a near zero
value for JLR, which generated EBITDA of US$670m in 1QFY12 and has low gearing at 0.2x. We
believe Tata Motors’ risk/reward is favourable and reiterate our Buy call.
No comments:
Post a Comment