Tata Motors - Deja vu FY12 in JLR! H2 to push up TAMO! - ICICIdirect

Tata Motors (TML) announced its Q1FY13 results, which were in line with expectations in terms of margins on both JLR and consolidated fronts. JLR margins remained flat QoQ to 14.5% (IFRS) while profit for the same was hit by higher forex (£67 million) and tax rate (~25%). On the outlook, the domestic business outlook for the MHCV segment remains murky with extremely weak GDP growth. We have cut the JLR volume estimates considering the muted global demand scenario and believe JLR's new products will provide strong growth through H2FY13 and FY14E. The margin performance of JLR remains reassuring. We believe it would remain between ~14% and 15% in the near to medium term. On valuation terms, the stock continues to remain attractive with low consolidated PE of ~5.0x, low debt levels (~0.25x net debt) and high RoEs (>20%). We maintain our BUY rating on the stock.

Results in line as margins expectations met...

The Q1FY13 results were marked by weaknesses in the domestic margin performance at ~7.3% (vis-à-vis 7.7% expectations) while for the JLR side, which remains the most important, margins met expectations at ~14.5%. The profits for JLR were dented by ~£67 million (mn) due to notional losses on loans. Tax rate for the business was also very high due to increased share from China and the kicking in of the impact related to deferred tax assets created in Q4FY12.

Long term buy fundamentals remain intact...

TML's business in the longer term remains stable led by product development strategies. However, in the immediate term, the domestic business is experiencing another challenging year. This, we believe, will impact near term earnings growth for the standalone entity. However, with JLR holding its margins in a weak environment, a ramp-up is a positive. In H2, with new products coming in and change of model year, we believe volume traction would return in FY14E.

Valuations remain attractive...

We believe valuations remain attractive at 5.0x PE on a consolidated basis with strong RoEs (>20%) driven conviction. We have arrived at an SOTP target price of Rs.285 and maintained BUY. We advise all portfolio investors to make long term entries in Tata Motors DVR at all dips.

Source : Equity Bulls

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