Investment Research and Business Due Diligence
Sunday, June 15, 2014
Buy Tata motors - Valuation hedges the downside - See upto 25 percent upside driven by turnaround of Indian business
JLR sales continues to rise year on year and sequentially
The stock is trading at 8x FY-15 earnings which is a steep discount to other companies in the sector. Maruti Suzuki trades at 25x FY-15 earnings. From a price to book value perspective Tata Motors trades at 3x book value while Maruti Suzuki trades at 3.5x book value.
The low price earnings ratio for Tata Motors is despite the Indian business of the company incurring losses which is a drag on tata motors current earnings. I foresee a turnaround in Tata Motors Indian business profitability driven by a surge in commercial vehicle demand (buses and trucks). Over the next 3 years Indian business should add about 25 to 30 percent of tata motor's consolidated FY-14 earnings.
JLR sales will further catch up in emerging Markets
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