Sharekhan assigns 'hold' to Tata Motors for target Rs 545

MUMBAI: Sharekhan has maintained ‘hold’ on Tata Motors for a revised target price of Rs 545. The companys' results for Apr-June 2008-09 are below the brokerage expectations due to lower than expected margins. However, the profit after tax of the company is higher than their estimate mainly on account of a higher other income and a lower tax outgo during the quarter.

The net sales for the quarter grew by 14.4 per cent to Rs 6,928.4 crore on back of 3.9 per cent volume growth and 10.1 per cent realisation growth during the quarter.

Domestic sales of commercial vehicles increased by 15.9 per cent to 71,049 units while that of passenger vehicles declined marginally to 52,450 units. Export sales volume declined by 34 per cent to 9,220 units.

An increase in the overall expenses, such as raw material cost, employee cost and other expenses, led the operating profit margin to decline by 130 basis points to 7.7 per cent. Hence, the operating profit dropped by 2.9 per cent to Rs 530.5 crore in Apr-Jun 2008-09.

A higher other income and lower tax outgo helped the adjusted profit after tax to grow by 59.3 per cent to Rs 412.37 crore. After accounting for foreign exchange loss of Rs 199.9 crore and profit of Rs 113.7 crore on sale of the stake in Tata Auto Components, the reported net profit declined by 30.1 per cent to Rs 326.2 crore.

Tata Motors has not reported the consolidated results for Apr-Jun 2008-09 since the financial statements of Jaguar and Land Rover are under compilation and have not been finalised yet. However the performance of the subsidiaries was also affected by the rising commodity prices and interest rates during the quarter.

Sharekhan’s outlook on the commercial vehicle industry remains cautious considering the lower availability of finance, the rising interest rates and the slowdown in the economy.

In view of the pressure on the company's profit margin, Sharekhan has downgraded their consolidated estimate for 2008-09 by 7.3 per cent to Rs 54.6 and that for 2009-10 by 12 per cent to Rs 60.8.

At the market levels, the stock trades at 6.5x its FY2010E consolidated earnings and is available at an enterprise value /earnings before interest, depreciation, tax and amortization of 3.1x.
thanks to :- economictimes.indiatimes.com