TATA MOTORS BUY

Tata Motors (TTMT IN; Mkt Cap USD7.8b, CMP Rs754, Buy) n Tata Motors reported better than expected numbers for 3QFY08. Net sales grew 6.3% YoY to Rs72.5b, higher than our estimate of Rs71.3b. EBITDA margin expanded 210bp QoQ to 11.3% as against our estimate of 9.7%. Adjusted PAT declined 5.7% YoY to Rs4.2b as against our expectation of Rs3.4b. n Growth in net sales was aided by 1.7% YoY growth in volumes and 4.5% YoY growth in realizations. LCV volumes increased 17.9% YoY and UV sales were flat. However, M&HCV volumes declined 2% YoY and passenger cars declined 8.2% YoY. n EBITDA declined 2.8% YoY but grew 37.7% QoQ to Rs8.2b. EBITDA margins declined 110bp YoY (expanded 210bp QoQ) to 11.3%. The company has initiated aggressive cost reduction initiatives to combat margin pressures. n There was a forex gain of Rs275m and an extraordinary gain of Rs650m on sale of 11.11% stake in HV Axles to Tata Capital. The company reported a PAT of Rs5b. Adjusting for the extraordinary items, PAT declined 5.7% YoY to Rs4.2b. n Consolidated net sales grew 12.9% YoY to Rs92.4b, while consolidated adj. PAT was flat at Rs5.7b. Among the subsidiaries, Telcon (revenue up 51%, PAT doubled) and Tata Daewoo CV (revenue up 46%, PAT doubled) posted impressive 9MFY08 results. n The stock trades at 14.6x FY08E EPS of Rs51.8, 12.7x FY09E EPS of Rs59.5. Maintain Buy. (See attached file: TTMT-20080201-MOSL-RU-PG006)
Hero Honda (HH IN; Mkt Cap USD3.7b, CMP Rs725, Buy) Hero Honda’s 3QFY08 results surprised positively as EBITDA margin improved 150bp QoQ and 260bp YoY to 13.9% (above expectation of 11.7%). n In 3QFY08, HH’s volume was marginally lower by 0.3% YoY, but higher 18.1% QoQ. However net sales increased by 2.9% YoY due to increase in realizations by 3.2%. n EBITDA margin at 13.9% was the highest since 4QFY06. Margin improvement was attained in spite of the Rs2,000 discount on CD series bikes for about a month. We believe that this was achieved by greater penetration in the +125cc segment and by selling deluxe version of bikes, lower raw material prices (boosted by 4% QoQ decline in aluminium prices and 5% QoQ decline in copper prices), focus on containing costs, controlling ad and marketing expenditure, and lower cost of imported alloy wheels. n Other income was also significantly higher than expected at Rs521m, a rise of 55% YoY. As a result, PAT increased by 31.5% to Rs2.75 (v/s exp of Rs2.3b). n We have increased our EBITDA margin expectation for FY08 and FY09 to 12.6% and 12.5% respectively. Our EPS estimates for FY08 and FY09 stand upgraded by 5.3% and 3.3% respectively. We now expect HH to report EPS of Rs46.2 (6.7% growth) in FY08, Rs53.1 in FY09 and Rs58.4 in FY10. The stock trades at 15.7x FY08E EPS, 13.6x FY09E EPS and 12.4x FY10E EPS. Maintain Buy. (See attached file: HH-20080201-MOSL-RU-PG008)
Amtek Auto (AMTK IN; Mkt Cap USD1.3b, CMP Rs323, Buy) Consolidated revenues grew 20.9% YoY to Rs11.7b (v/s our expectation of 25% growth), while consolidated adj. PAT grew 9.7% YoY to Rs1.1b. Consolidated EBITDA margin declined 60bp YoY (expanded 20bp QoQ) to 17.8%. Other income was up 67% YoY at Rs298m. Performance of subsidiaries n Amtek Auto’s standalone sales increased 27.4% YoY to Rs3.2b. Margins declined 240bp YoY to 27.6% (+40bp QoQ) due to price increases given to suppliers during 3QFY07 and lower realizations on exports. PAT increased 10.2% YoY to Rs647m (flat QoQ), led by higher other income. n Ahmednagar Forgings’ sales increased 14.2% YoY to Rs1.7b, while EBITDA margin decreased 10bp YoY to 20.6% (+30bp QoQ). PAT was flat on a YoY basis at Rs177m (+3.5% QoQ). n Amtek India’s revenues increased 29.3% YoY, backed by an EBITDA margin expansion of 120bp YoY to 23.8%. PAT increased 21.7% YoY to Rs392m. Amtek Auto has a strong and diversified customer base, which will help it to maintain robust revenue growth. Its top customers are Suzuki (14% share in Amtek’s sales), Honda (7%), Ford & GM (15%), Tier-I’s Honeywell, Borgwarner and Garret (14%), Tata Motors (5%), BMW (4%), and Renault (4%). The stock trades at 11x FY08E EPS of Rs29.5 and 9.2x FY09E EPS of Rs35. Maintain Buy. (See attached file: AMTK-20080201-MOSL-RU-PG008)
Bank of Baroda (BOB IN; Mkt Cap USD3.8b, CMP Rs406, Buy) n PAT of Rs5.0b (v/s estimate of Rs4.1b) in 3QFY08 on the back of strong treasury profits and recoveries. NII growth at 10% YoY was lower than our estimate of 17% growth. n Advances grew by 23% in 3QFY08 to Rs955b. On a QoQ basis, advances grew by 6%. Deposits grew by 22% YoY in 3QFY08 (QoQ growth of 9%). CASA ratio as percentage of domestic deposits was 37.3% (down 22bp QoQ and 276bp YoY). n Other income for the bank increased by 85% YoY to Rs6.2b, led by higher treasury profits, which increased from Rs309m in 3QFY07 to Rs1.9b in 3QFY08. Recoveries from written off accounts increased 142% YoY to Rs1.3b. Forex income grew 27% YoY to Rs.6b. Core fee income growth was modest 17% YoY. n Gross NPAs decreased 15% YoY to Rs20.4b. Gross NPA ratio reduced to 2.1% in 3QFY08 (down 22bp QoQ). Net NPA ratio declined YoY from 0.7% in 3QFY07 to 0.5% (stable QoQ). n We have increased our earnings estimates for FY08 by 10% and 2% each for FY09 and FY10. We have not factored in gains from stake sale in UTI AMC, which is expected in next couple of quarters. We expect RoA to remain at ~0.9% and RoE to improve to 17% by FY10E. The stock trades at a PE of 7.2x and P/B of 1.2x FY10E. Maintain Buy. (See attached file: BOB-20080201-MOSL-RU-PG006)
Canara Bank (CBK IN; Mkt Cap USD3b, CMP Rs296, Neutral) n NII declined 10% YoY to Rs9b v/s our expectation of Rs8.3bn. NIMs fell 73bp YoY to 2.41% however; it improved 5bp QoQ on back of significant slow down in balance sheet growth. Canara Bank has increased its focus on core deposits and high-yielding advances. n Deposits grew 9% YoY to Rs 1.4t and advances increased 9% YoY to Rs 985b. CASA ratio increased to 32% from 30.7% in 2QFY08 and the share of bulk deposits in total deposits reduced to 25% from 35% in 3QFY07. n Other income increased sharply by 69% YoY in 3QFY08, due to significant rise in the treasury profits to Rs1b v/s Rs0.3b in 3QFY07. Ex-treasury, other income grew by 66%. n Gross NPA ratio declined from 2.06% in 3QFY07 to 1.54% in 3QFY08. Net NPA ratio declined from 0.99% in 2QFY08 and 0.96% in 3QFY07 to 0.94% in 3QFY08. n We believe Canara Bank would be a major beneficiary of the benign interest rate scenario going forward. The downward re-pricing (or repayment) of its high cost deposits would lead to margin improvement and better operating results in FY09. Softening of G-sec yields would mean reversal of MTM provisions going forward as 50% of the bank’s portfolio is in AFS (available for sale) category. Robust asset quality would ensure lower NPA provisioning. n The stock is trading at P/E of 7x FY10E EPS and P/BV of 1.0x FY10E. While the valuations are attractive and environment is conducive for improvement in core profitability for the bank, we would wait for one more quarter to watch the improvement in core operations. Maintain Neutral.