Accumulate Tata Motors; target of Rs 580: KRChoksey

KRChoksey is bullish on Tata Motors and has recommended accumulate rating on the stock with a target price of Rs 580 in its August 2014 research report.

August 22, 2014 / 07:02 PM IST

KRChoksey's report on Tata Motors

"Tata Motors, the new product mix at JLR has helped Tata Motors to improve its top-line by 38%Y-o-Y to Rs 64304Cr with JLR posting growth of 54%Y-o-Y to Rs 54426Cr. while standalone business reported marginal sequential improvement by 2% to Rs 9898Cr. With the new product mix at JLR with better margins and local manufacturing aiding cost reduction, Tata Motors was able to report EBITDA of Rs.11142Cr. which is an increase of 11%Q-o-Q and a substantial 79%Y-o-Y. This operational efficiency translated into expansion of the operating margin by 192bpsQ-o-Q and 391bpsY-o-Y to 17.23%. The Consolidated PAT of the company was reported at Rs.5413Cr. which is a phenomenal growth of 37%Q-o-Q and 206%Y-o-Y. The PAT margins expanded by a significant 231bpsQ-o-Q and 459bps Y-o-Y to 8.37% aided to some extent by lower finance costs during the quarter."

"The company has posted robust earnings during this quarter back by JLR and the sustainability is our main concern. While product innovation, local manufacturing, and revival of traditional markets will see demand pull for JLR. On the Domestic business, the CV business revival possible in the later half of the fiscal will be a boost to the ailing domestic profitability. But we remain skeptical over the success of the new PVs which the company expects will drive volumes for it. We however factor in 7% volume growth for PV segment in our FY15E estimates. At the CMP of Rs.475, Tata Motors is trading at 9.7x its FY15E EPS of Rs.49 and at 8.2x its FY16E EPS of Rs 58. we revise our target price upwards at Rs 580 using target multiple of 10x FY16E, we recommend "ACCUMULATE" on the stock with a potential upside of 22%," says KRChoksey research report.

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