Tata Motors rides to lifetime high; Deutsche Bank upgrades stock to ‘buy’
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At 10:00 a.m.; Tata MotorsBSE 4.41 % pared some of the morning gains and was trading 4.6 per cent higher at Rs 360.70. It has hit a low of Rs 344.10 and a lifetime high of Rs 364.70.
The stock has been in an uptrend so far in the year 2013, supported by robust sales from its UK subsidiary. Shares have rallied a little over 10 per cent as compared to 0.58 fall in the BSE Auto index, as of data collected on 3 October.
Analysts at top global brokerage firms have largely maintained their 'BUY' rating on Tata Motors citing improvement in global macros and robust sales from its UK-subsidiary.
Analysts are of the view that Tata Motors is likely to benefit from strong volume growth at its Jaguar Land River unit, especially in China, which should offset declining sales in its domestic market.
Out of five brokerages which maintain their positive bias on the stock, atleast two of them see the stock crossing 400 levels in next 12-months.
After Goldman Sachs, the recent one to recommend Rs 400+ target price for the global auto giant is Deutsche Bank. The global investment bank has also upgraded the stock to 'buy' with a target price of Rs 400.
A 25 per cent increase in valuation, in line with the expansion in valuation multiples for automotive peers reflecting the improvement in global macro. China and the US, which account for 45% of Jaguar LandRover's volumes, have been particularly robust.
The global investment bank says that our target price implies FY15E EV/EBITDA of 7.5x for India business and 3.8x for JLR. The valuation for JLR is in line with BMW (3.5x CY14E), adjusting for differences in R&D accounting.
Deutsche China economist Jun Ma is increasingly constructive on China GDP which should help JLR to post better volumes in near future. He projects 8.6%/8.2% GDP growth for CY14E/CY15E.
"For JLR, we forecast FY14E/FY15E/FY16E volumes at 420K/462K/538K, implying a three-year CAGR of 13%. YTD, JLR volumes have grown 17%, driven by the US (20%) and China (22%)," added the Deutsche Bank report.
Most analysts remain positive on Tata Motors, as they expect volumes to remain healthy on the JLR front and weak rupee should be able to aid margins. However, the domestic business is likely to remain under some nit of pressure.
Deutsche Bank expects TAMO (parent) to generate an EBITDA of Rs 47 bn in FY16E, which would be in line with its previous peak in FY11. While the car and UV businesses are likely to remain under pressure, we expect a revival for CVs in FY15E, said the global investment bank.
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