castrol india ltd - Myiris.com

INITIATING COVERAGE
MORNING INSIGHT October 25, 2012
Arun Agarwal
arun.agarwal@kotak.com
+91 22 6621 6143
Stock details
BSE code : 500570
NSE code : TATAMOTORS
Market cap (Rs mn) : 844,163
Free float (%) : 35
52 wk Hi/Lo (Rs) : 321/142
Avg daily volume (mn) : 15
Shares (o/s) (mn) : 3,174
Summary table
(Rs mn) FY12 FY13 FY14E
Sales 1,656,545 1,946,462 2,255,291
Growth (%) 36 18 16
EBITDA 223,112 253,463 305,298
EBITDA margin (%) 13.5 13.0 13.5
PBT 135,588 163,611 198,846
Net profit 135,165 120,700 150,563
EPS (Rs) 43 38 48
Growth (%) 46 (11) 25
CEPS (Rs) 60 60 75
Book value (Rs/share) 103 136 179
Dividend per share (Rs) 4 4 4
ROE (%) 52 32 30
ROCE (%) 31 29 29
Net cash (debt) (213,807) (230,548) (213,875)
NW Capital (Days) (27) (25) (26)
P/E (x) 6.2 7.0 5.6
P/BV (x) 2.6 1.9 1.5
EV/Sales (x) 0.6 0.6 0.5
EV/EBITDA (x) 4.7 4.2 3.5
Sales
Q2FY12 Q3FY12 Q4FY12 Q1FY13
361,975 452,603 509,079 433,236
EPS (Rs) 5.9 10.7 19.6 7.0
Source: Company,
Kotak Securities - Private Client Research
TATA MOTORS LTD
PRICE: RS.265 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.296 FY14E P/E: 5.6X
With almost 70% sales coming in from JLR, Tata Motors’ success hinges over
the performance of JLR. We expect JLR to continue the growth momentum
over the next few years. Strong demand from developing countries coupled
with new launches should aid JLR's volume growth over the medium term.
We expect JLR's geography mix and product mix to improve going ahead.
On standalone operations, we expect FY13 to be a difficult year but expect
recovery in FY14 and that will be critical for expected strong earnings
growth in FY14. We initiate coverage on Tata Motors (TAMO) with an
ACCUMULATE rating and SOTP based price target of Rs296.
Key investment argument
� JLR's growth momentum to continue; will remain key for TAMO. Global
demand for luxury cars has been on an uptrend for the past couple of years.
Growth has come in from strong demand from both the developed and the
developing markets. Rising income levels coupled with low penetration levels
have led to strong demand for premium cars in developing economies. China
will likely remain the key market for JLR. Volumes ahead are expected to gain
momentum from the new launches that are planned over the next few quarters.
� Product mix and geography mix expected to improve. JLR sells its products
across geographies with no single market accounting for more than 25% of the
volumes. With strong demand from China and other developing nations and
relatively weak European scenario, we expect JLR's exposure to get further tilted
in favor of growing markets. JLR's FY13 sales are expected to be largely driven
by the success of Evoque. Being a relatively lower margin product, Evoque's
increased share in the overall business will likely deteriorate the company's
product mix in FY13. However, we expect the trend to change as company
launches new models/refreshes/variants. We expect contribution from other
models to increase which will strengthen the product portfolio.
� Currently under pressure, domestic sales expected to recover in FY14.
Volumes in the domestic auto segment are under pressure. Current scenario
does not provide a lot of comfort in terms of quick volume recovery. However
we remain optimistic about demand recovery over the medium to long term.
Reasons for our positive view over the medium term include possible cut in
interest rates, pent-up demand and expected economic recovery. Interest rate
cycle is at its peak and any attempts from the RBI to lower rates will only be
positive for the domestic auto sector. We expect the volumes from Indian
operations to grow at 13% CAGR over FY12-FY14E.
Valuations
� We value TAMO on SOTP methodology and arrive at a fair value of Rs296. We
have valued the company's standalone business at an EV/EBITDA of 7.5x which
is similar to the multiple at which Ashok Leyland (M&HCV) and Maruti Suzuki
(Passenger car) trades. Accordingly, we have arrived at a value of Rs82 per
share. For the JLR business, we have valued it at EV/EBITDA of 3.5x to arrive at
a value of Rs194 per share. We have valued TAMO's other subsidiaries at Rs20
per share. We assume coverage on Tata Motors with an ACCUMULATE rating
and price target of Rs296.
Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 2