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Research
Angel Broking recommends Buy on Tata Motors DVR with a Target Price of Rs 365 (12 months)
Posted On : 2014-04-08 21:13:43( TIMEZONE : IST )
Price Differential to reduce
Tata Motors DVR (TaMoD) shares are "A" shares carrying differential voting rights. TaMoD has 10% of the ordinary voting rights and higher dividend per share by 5% than the aggregate dividend rate for main shares. Currently, the stock is trading at a steep discount of 46.7% to its main shares. However, internationally, the main shares and their DVR forms usually trade at parity or at lower discount. This leads us to assume that the discount gap at which TaMoD is trading will reduce going forward. Considering the target price for TTMT at Rs. 487 and expectation of the discount to reduce to 25.0% over next 2 years, we recommend Buy rating on TaMoD with a target price of Rs. 365.
Investment Rationale
Discount to reduce eventually: TaMoD shares with differential voting rights and beneficiary of minimally higher dividend amount (5% higher) are at par with the main shares in rest of the aspects. For this reason, ideally, the DVR shares are expected to trade at lower discount from the main share. However, TaMoD shares have been historically trading at higher discount to their main shares, currently at 46.7% discount which is expected to reduce eventually.
JLR to post stellar growth: JLR delivered a solid 40% ROE despite weak yet improving margins on the Jaguar part. Moreover, it is expected to deliver a volume CAGR of ~14% over FY2013-15E, driven by strong momentum witnessed in the recently launched models and full ramp-up of the new Range Rover Sport. We expect the stellar JLR performance to drive further growth for TTMT. Outlook and Valuation: Considering the robust growth prospects of TTMT, we expect the bottom-line of the company to grow at a CAGR of 24% over FY2013-16E. Valuing the TTMT on SOTP basis, target price works out to be Rs. 487. Moreover, at CMP, TaMoD is trading at attractive valuations of 3.5x PE for FY2016E. Assuming the discount gap to reduce from current 46.7% to 25.0% we arrive at the target price for TaMoD at Rs. 365 over coming two years, providing 69.1% upside from current levels.
