Buy Tata Motors target of Rs 253

LKP is bullish on Tata Motors and has recommended buy rating on the stock with a target of Rs 253 in its January 10, 2012 research report.

"Tata Motors, robust performance from Jaguar as well as Land Rover in the emerging markets enabled TAMO to put up a strong performance over FY 12, as a result of which the YTD sales have reached above 2,16,000 units. This indicates that even if the company sells about 28,000-30,000 units per month hereon for the rest of the three months of FY12, JLR can easily cross 2,90,000 units, which is way above our previous conservative estimate of 2,70,000 units. The traction which is shown by JLR on increasing demand for it's recently launched Evoque, a smaller engine fitted Jaguar XF and emerging markets like China, Middle East, Russia, Brazil etc, we expect the company to offset any losses happening in the Eurozone. Margin wise, we still believe that Evoque will not be a dampener as differential pricing in various geographies will help the company prevent any margin fall. We now expect JLR to grow at 19.4%/16.3% in FY 12E/13E to reach 291k/338k respectively."

"Robust demand for LCVs insulated from the macro headwinds is helping the company to put up a solid show on the CV side of the business. LCVs used mainly by the consumption side of the industry and last mile transportation still remains buoyant. We have increased the LCV volume forecast to 353k/414k from our previous estimate of 323k/383k for FY12E/13E, translating into growth of 23%/17% respectively. The company's LCV (Tata Ace and variants) capacity expansion plan at Pantnagar and setting up new capacity at Dharwad will yield results from FY 13 onwards, due to which we have increased the FY13 numbers by 8%. On the MHCV side, the company is still showing resilience with moderate growth of close to 7%. With freight rates stable except for eastern parts of the country and expectation of interest rate cycle reversing though industrial growth is slightly slowing down, we are maintaining our MHCV estimates at 222k/239k for FY12E/13E, which implies a growth of 6%/8% respectively."

"After having a dismal run in the first half of FY 12, PV sales is showing signs of improvement with Nano sales now consistently selling 6k-7k per month. With new variants of Nano coming up we expect the steady state rate of Nano to be at 10,000 per month in FY13. Also with a variant of Indica Vista launched recently the PV sales are looking upwards. With the upcoming launch of Tata Safari Storme as displayed in the Auto Expo 2012, we expect the company to show some revival in its flagging UV business. We now expect PV sales to be at 301k/347k in FY12E/ FY13E, a growth of (2%)/15% respectively."

"With robust expectations from JLR business and steady business from the domestic side, we are revising our volume estimates as well as margin estimates for the company, though we feel that in short term, margins will be affected due to currency risks. We expect consol margins to be at 11.7%/12.8% for FY 12E/13E from our earlier expectations of 11.7%/12.2%. We now value the domestic business at 8xEV/EBITDA at Rs 122 and JLR at 3x EV/EBITDA at Rs 141. We arrive at a target of Rs 253, which is an upside of 19% from current levels after subtracting Rs 28/share of net debt and adding back the subsidiary value of Rs18," says LKP research report.