Thanks

wheels parts

They say:
We believe Tata Motors’ 6-month 76% outperformance vs Sensex discounts the improving outlook for the economy and commercial vehicles (c75% of its standalone EBIT).

Domestic demand likely bottomed out, but JLR is a known unknown
Medium and heavy commercial vehicle (MHCV) volumes reflect a nascent
recovery. In addition, Tata Motors has steadily gained market share, especially in
the truck segment (66.4% in FY09 vs. 64% in FY08). JLR’s volumes (YTD Apr) in
the key US and Europe markets are down c19% and 40%, respectively, and its
financials remain inscrutable at this juncture.
Trading at EV/EBITDA of 6.5x FY10E
Our price target is based on FY10E EV/EBITDA of 7.5x for Tata Motors (ex-JLR)
and 4.5x for JLR. A 7.5x multiple for the domestic business is above the historical average, while the JLR multiple is in line with European peers and translates into
zero equity value for JLR. A key upside risk is better-than-expected financials for Jaguar/Land Rover; downside risk is a prolonged downturn in CV demand.

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It is clear that JLR is more important than the Nano. So if you think Jaguar sales will boom again….’
They see Small Cars (Nano) accounting for 20% of sles in FY11. Not bad, but hardly shocking

DB thinks recovery of JLR is unlikely before FY11
Also DB claims that ‘elevated levels of leverage necessitate equity issuance
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Investment thesis

Outlook
The outlook for Tata Motor’s domestic business has improved along with the economic outlook for the country. There are signs of a nascent recovery in commercial vehicles, which accounts for c75% of Tata Motors’ India-based business. However, we believe that recovery in Jaguar Land Rover is unlikely to happen before FY11E. Tata Motors’ strong stock outperformance and current valuations likely discount the positives of the India-based
business and factor in an optimistic scenario for Jaguar Land Rover (JLR). Thus, we
downgrade to Hold.

Valuation
We use EV/EBITDA to value Tata Motors. The company is in the midst of a transformation
that is changing its revenues, margins and cash flow profile. There has also been a significant
increase in the company’s leverage. Additionally, we are hamstrung by the lack of complete
operating information on JLR. As a result, we use EV/EBITDA as our relative valuation metric.
We partition Tata Motors’ financials into an Indian-based business and a global luxury car
business (Jaguar Land Rover). The comparable peers for the global business include
European manufacturers such as BMW and Daimler. We base our target price of
Rs335/share on 7.5x EV/EBITDA for the India-based business and 4.5x FY10E EV/EBITDA for JLR. Our valuation for the India-based business is higher than Tata Motor’s historical average
to reflect the recovery in commercial vehicles. Our valuation for JLR is in line with its
European peers. This translates into 6.2x FY10E EV/EBITDA on a consolidated basis. Our valuations imply a minimal equity value for JLR.

Risks
Upside risks include better-than-forecast financials of Jaguar Land Rover and a higher-thanexpected
fall in raw material costs. Downside risks include a delay in the turnaround of Jaguar Land Rover and a prolonged downturn in CV demand.

http://www.ft.com/cms/s/0/871fd8d4-14ee-11de-8cd1-0000779fd2ac.html?nclick_check=1