Maintain 'buy' on Tata Motors -TP Rs.375 - Geojit BNP Paribas Financial Services Limited

- Company's 4QFY12 earnings missed market expectations mainly due to lower margin from JLR business.

- JLR margin was below market expectations by 500 bps.

- For the quarter, overall business was in line with market expectations but EBITDA margin at 11% is lower than expected by the market.

- 500 bps qoq decline in JLR's margin to 15% was due to several factors like skewed sales towards the UK market, less favorable Evoque (recently launched model) mix, increased employee costs due to expansion plans, increased promotion and advertising expenses and change in accounting standards related to treatment of forex gains and losses.

- Performance of domestic business has been better than expected with higher than expected margin trends.

- Despite the drop in JLR margins, overall business trend is better and the risk-reward ratio looks attractive.

- Considering that Tata Motors still has some waiting period on some of its recent launches such as the Evoque model, the pricing environment is fairly stable, capacity utilisation at the UK plants remains fairly high and the innovation pipeline remains on track.

- The stock may face a near term sell-off in the wake of lower-than-expected JLR margins, but the positive long term view is retained considering its fundamentals and current valuations.

- Buy rating on the stock is maintained with a target price of Rs.375 over one year view.

- A substantial decline in global consumer confidence and deepening economic crisis are the key risks to our call.

Source : Equity Bulls

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