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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