Buy Tata Motors - Fairwealth Institutional Research

Tata Motors Ltd is India's largest automobile company and leader in commercial vehicle section with consolidated revenue of USD 32.5 billion in 2011-12. It is the 4th largest truck and bus manufacturer in the world. In the year 2004, the company acquired Daewoo Commercial Vehicles while in 2008, it acquired the business of Jaguar and Land Rover (JLR) for USD 2.3 billion. It has also entered into partnerships with Marcopolo from Brazil, Flat Group Automobiles from and Trilix Srl. from Italy. During 2008, the company launched Tata Nano, the least expensive car in the world. Tata Motors are known for launching innovative products.

Investment Thesis:

- Tata Motors rely on innovative technologies and launches new products catering the needs of the various customers and different industries. They have portfolio of vehicles ranging from sub-1 Ton to 49 Ton gross vehicle weight (GVW). It has an Engineering Research Centre at Pune to provide impetus to automobile research and Development.

- Last few quarters has witnessed a sharp uptrend in demand for the luxury cars worldwide. JLR has a robust market hold in China and it should continue to generate handsome revenue from China along with other developing as well as developed economies. JV of JLR with Chery Auto of China is likely to increase competitiveness and profitability in China from FY15.

- Tata Motors announced its Oct sales number which saw a growth of 6% yoy. Domestic sales which was under pressure during last few quarters is likely to gain pace in FY14 owing to the fact that RBI is most likely to go for a series of rate cuts during next fiscal. Economic recovery and growth upswing will automatically act as catalyst for better vehicle sales.

- Favourable relative movement of USD and Euro against the British Pound will help Tata Motors to improve its EBITDA margins by approx 25 basis points in this quarter. US is net exporter for the company while Euro is net importer.

- Tata Motors most profitable domestic segment, LCVs continue to grow at a CAGR of 24% due to less cyclicality and hence less volatility in demand. LCV continues to be profitable and we expect Tata Motors to do well in this section in the future.

Valuation: Robust performance by luxury car section and JLR will withstand the growth story for Tata Motors. Company's ever increasing presence in China and JV with Chery Auto offers revenue visibility for the coming quarters. RBI's rate cut will prompt the growth stimulus which will translate into better auto sales number during next financial year. The ongoing model changes and innovative brands ensure the customer's interest in Tata. Tata Motors is trading at CMP of Rs 268, we recommend a BUY rating for the stock with a target price of Rs. 340.

Source : Equity Bulls

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