Buy Tata Motors; target of Rs 343: Motilal Oswal

Motilal Oswal is bullish on Tata Motors and has recommended buy rating on the stock with a target of Rs 343 in its March 30, 2012 research report.

"Tata Motors, Volume guidance by luxury carmakers remains positive allaying fear of muted volumes due to European crisis and China slowdown. While BMW indicated single digit growth in CY12, Mercedes Benz is targeting ~6% CAGR over CY11-15. Also, JLR's commencement of 3rd shift at Halewood plant, although adding limited volumes, is indication of strong demand for luxury vehicles, especially Evoque."

"Tata Motors (TTMT) indicated that JLR continues to do well in China and is not offering any meaningful discounts. In fact, Evoque's waiting period in China is over 3 months. TTMT also clarified that instances of higher discounts are restricted to models which are up for refresh. Further, JLR has entered into an equal JV with Chery Auto of China to develop, manufacture and sell certain JLR vehicles in China and at least one own-branded model. JLR would be investing ~GBP350m as its equity contribution in this JV. JLR is making R&D investments to plug gaps in its product portfolio. Post Evoque, it has multiple other products in the works, which will enable this. Over next 2-3 years it will be launching a) XF Sportbrake, b) New Defender, c) Compact luxury car, and d) Crossovers. JLR plans to increase its capex to GBP1.75b in FY13. It also indicated that operating and financial performance in 4QFY12 is in line with expectations, reflecting continuation of the favorable trends."

"Current FY13 estimates factor in slowdown in JLR volumes. Our FY13 volume estimate implies monthly runrate of 30,000. If we factor in current runrate of 33,000/month, our FY13 consolidated EPS would see 25% upgrade. TTMT currently trades at 6.8x FY13E consolidated EPS and 10.8x normalized consolidated EPS. The DVR stock trades at 3.8x FY13E consolidated EPS and 6.0x normalized consolidated EPS. Maintain Buy, with target price (FY13 SOTP-based) of INR343 for ordinary share and INR206 for DVR (40% discount to ordinary share)," says Motilal Oswal research report.