In their report, Ramnath S and Ashish Shah of SSKI maintained outperformer rating citing stability in freight rates, which continues to rule at higher levels after rising for 12-18 months.
MUMBAI: Signs of sales slowdown and margin pressure on one hand and subsidiaries’ promising performance and rapid internationalisation of business on the other have prompted analysts to take contrarian views on Tata Motors stock, which has underperformed the broader market over the last one year.
In their recent report, citing short-term weakness on margin contraction and sedate sales Citigroup’s Jamshed Dadabhoy and Hitesh Goel have rated Tata Motors as an opportune buy with a price target of Rs 1,029. On Monday, the stock closed 2.4% down at Rs 725 on the BSE.
The duo based their rating on the company’s efforts to de-risk the business by expanding the share of international business to 25% of sales by 2010 (currently 18%), increasing the share of captive financing of sales (through subsidiary TML Financial Services) to 40% by 2008 (32% currently) and increasing revenue of non-cyclical businesses (currently 24%). In the long term, the duo expects Tata Motors to induct a partner in TML.
In their report, Ramnath S and Ashish Shah of SSKI maintained outperformer rating citing stability in freight rates, which continues to rule at higher levels after rising for 12-18 months.
Huzaifa Suratwala of Emkay Shares and Stock Brokers also rated the stock as buy. “Though the immediate outlook for CVs and cars remains bleak, Tata Motors is expected to benefit in the longer term from the favourable domestic economy, increasing international presence (rising exports & benefits from JVs and tie-ups) and aggressive launches from new platforms scheduled in the next 12 months,” Suratwala wrote.
Leading the naysayers is CLSA Asia-Pacific Markets. Analyst Anupam Gupta feels firm’s Rs 12,000 crore capex plan over next 3-4 years would stretch its balance sheet. “We expect these plans will keep capital costs high and pre-empt most of operating cash flows in the next few years. With volume growth also set to moderate from past highs, we expect stock’s recent underperformance is likely to continue,” he said.
Tata Motors’ greenfield plants in West Bengal and Uttranchal besides its equal partnership plant with Fiat in Maharashtra would soak up substantial money. It is scouting for a location to set up a bus-making unit. These are in addition to brownfield capacity expansion and investments in new product development.
Morgan Stanley’s Balaji Jayaraman and Deepak Gupta have put a price target of Rs 650.“This reflects the lack of operating leverage (volumes were up 16% but margins narrowed 150 bps in fourth quarter of 2006-07), increased calls on cash (Rs 12,000 crore of capex over next four years), higher borrowings/ interest costs (close to Rs 4 - 5,000 crore needs to be raised), leading to lower standalone earnings growth (2.2% CAGR over FY2007-09E),” the duo said.
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