[Investors] Tata Motors 2QFY10 Conso result update ; Mixed bag, Maintain SELL ; Target: Rs 415

Tata Motors Ltd.  

 

Mixed bag, Maintain SELL

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SELL

 

CMP: Rs 630                            Target Price: Rs 415

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Tata Motors' (TML) 2QFY10 consolidated results were mixed bag. While net sales and EBIDTA were in line with expectation, net profits were below expectation. JLR reported below expected EBIDTA (₤42 mn vs expectation of ₤51 mn), however, other subsidiaries adequately compensated for the same. JLR continues to capitalize ~₤100 mn pound of R&D spend per quarter. TML has provided for (in reserves) actuarial loss of Rs7.4 bn for JLR pension revaluations.

We expect JLR to remain FCF negative despite factoring in a strong turnaround in profitability. We expect JLR to report sales of ~167000 units and ~185000 units in FY10 and FY11 respectively. At the current juncture, we do not expect a strong recovery in the US/EU (for details refer to our note 'Tata Motors – Expecting too much too soon')

We continue to have concerns with respect to the balance sheet of the company (net D/E-ex financing business of 3x, ROCE of 11% despite a stronger ROE of 33%, P/B of 3.8x). Hence we are not comfortable giving a higher valuation multiple to stock. We continue to value the stock at discount to other automobile stocks.

We have valued TML standalone at target EV/EBIDTA multiple of the standalone business to 7x (20% discount to M&M). We have valued JLR at 5x EV/EBIDTA and other subsidiaries (ex TMFSL) at 20% discount to TML. We maintain our SELL rating on the stock with a target price of Rs 415 (upgraded by 4%).

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