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Tata Motors (TAMO.BO)
Neutral Equity Research
Not the time for bottom fishing yet; cut TP, estimates; stay Neutral
What's changed
Five reasons for this update: - (1) We argue that Tata Motors valuation on
balance sheet based multiples (EV/IC and P/B) has a strong inverse
correlation with the economic cycle. (2) Absolute levels of EV/GCI and P/B
are still at a premium to EU and US auto peers, amid macroeconomic
uncertainty clouding FY2013 earnings outlook in our view. (3) Valuation
appears inline with global auto peers on relative returns based analysis.
We therefore do not view the 20% MTD correction as an attractive
opportunity to buy. (4) We cut our FY12-14E EPS for Tata Motors by 12-
14%, mainly on lower revenue assumptions (3-5%), driven by: a) Cuts by
our global auto teams to US and Europe auto demand forecasts. b)
Weaker YTD volume growth performance of the domestic passenger car
and JLR business. We also incorporate FY2011 annual reports of the
company into our model. (5) We also cut our EV/EBITDA valuation
multiples in the SOTP by 15-20% given adverse economic & interest rate
cycle driving a change in our 12-m SOTP based TP to Rs774 (from Rs1073).
Implications
We continue to believe that EV-based metrics are more appropriate for
evaluating Tata Motors, and also retain our Neutral rating on the stock.
Valuation
Stock is currently trading at 3.7X EV/EBITDA Vs European peers trading at
3.6X and global peers at 4.2X, with A-share trading at a 44% discount.
Key risks
Lower/higher than expected monetary tightening; lower/higher than
expected slowdown in EU, US and China; lower disclosures at JLR.
Impact on related securities
We prefer relatively defensive names in our coverage group, which include
Exide Industries (EXID.BO, Conviction Buy, 150.05), Bosch India (BOSH.BO,
Buy, 7130.70) and Bajaj Auto (BAJA.BO, Buy, 1437.50).
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
Not the time for bottom fishing yet; cut TP, estimates; stay Neutral
What's changed
Five reasons for this update: - (1) We argue that Tata Motors valuation on
balance sheet based multiples (EV/IC and P/B) has a strong inverse
correlation with the economic cycle. (2) Absolute levels of EV/GCI and P/B
are still at a premium to EU and US auto peers, amid macroeconomic
uncertainty clouding FY2013 earnings outlook in our view. (3) Valuation
appears inline with global auto peers on relative returns based analysis.
We therefore do not view the 20% MTD correction as an attractive
opportunity to buy. (4) We cut our FY12-14E EPS for Tata Motors by 12-
14%, mainly on lower revenue assumptions (3-5%), driven by: a) Cuts by
our global auto teams to US and Europe auto demand forecasts. b)
Weaker YTD volume growth performance of the domestic passenger car
and JLR business. We also incorporate FY2011 annual reports of the
company into our model. (5) We also cut our EV/EBITDA valuation
multiples in the SOTP by 15-20% given adverse economic & interest rate
cycle driving a change in our 12-m SOTP based TP to Rs774 (from Rs1073).
Implications
We continue to believe that EV-based metrics are more appropriate for
evaluating Tata Motors, and also retain our Neutral rating on the stock.
Valuation
Stock is currently trading at 3.7X EV/EBITDA Vs European peers trading at
3.6X and global peers at 4.2X, with A-share trading at a 44% discount.
Key risks
Lower/higher than expected monetary tightening; lower/higher than
expected slowdown in EU, US and China; lower disclosures at JLR.
Impact on related securities
We prefer relatively defensive names in our coverage group, which include
Exide Industries (EXID.BO, Conviction Buy, 150.05), Bosch India (BOSH.BO,
Buy, 7130.70) and Bajaj Auto (BAJA.BO, Buy, 1437.50).
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
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