Buy Recommendation – Tata Motors DVR
Investors with a medium-term perspective can buy the Tata Motors DVR (Differential Voting Rights) stock. At the current market price of Rs 752 (Tata Motors – Rs 1070), these shares trade at a very reasonable PE of 8 times (Tata Motors – 11.5 times) the company’s estimated consolidated earnings for FY2011.
Issued in late 2008, the DVR shares carry one-tenth the voting rights of, and 5 per cent more dividend than, the ordinary shares. Illiquidity and lack of institutional interest has seen these shares trade at a wide discount to the Tata Motors stock. But with the DVR holdings gradually changing hands from promoters to domestic and foreign institutional investors, liquidity in the stock is improving, making a good case for investment. Thanks to the convincing turnaround of Jaguar Land Rover (JLR) and the revival in the domestic market, the company is now on a strong wicket. Robust volumes in JLR, a good product mix yielding higher realisations, a favourable market mix with increased volumes from China and cost reduction efforts helped consolidated revenues grow 64 per cent year-on-year to about Rs 27,000 crore in the June 2010 quarter. Profits stood at Rs 1,989 crore against a loss of Rs 329 crore in the same quarter last year. EBITDA margins too shot up to an impressive 14.5 per cent from about 3 per cent a year ago.
Considering the launches, the focus on emerging markets such as China and Africa, cost rationalisation and R&D efforts, the company is expected to sustain the good run. The new Jaguar XF, the next generation Jaguar XJ and its 2010 range of revamped Land Rover, Range Rover Sport and Discovery 4 have been received well in the markets. The company is also looking to rationalise costs at JLR by merging two of its three plants in the UK, setting up purchasing offices in China and India for sourcing low-cost components and by synergising development programmes for engines, platforms and vehicles with the Indian operations. Besides, the company will also benefit from the sustained revival in the domestic auto industry. The Nano, expected launch of the mid-size Aria car and a 0.5 tonne truck, capacity expansions for the Ace and the demand for the Magic Iris, Venture and Prima range of CVs are expected to keep the volumes ticking. A slower than expected growth in the UK and Europe, adverse currency movements and lower liquidity of the DVR shares remain risks to this recommendation.
*To get the password for buy calls, please subscribe to this blog. You will receive the password in next email to you*If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader.
Comments
No comments yet.
Leave a comment