The Hindu Business Line : Brokerages turn cautious on Tata Motors

Kolkata, Sept. 4 Brokerages appear to be cautious about changing recommendation gear for Tata Motors after it announced prices and structure for its two simultaneous and unlinked rights issues.

While some still clutch on to their “neutral” or “hold” or “sell” views, a few, however, upgraded recommendation.

Religare has maintained a “reduce” recommendation as equity dilution was according to its anticipation and had factored in the aspect for the long-term (one year valuation). Sharekhan has retained its “hold” rating.

Sharekhan continued to take a “cautious view” as sales were weak “with no immediate revival” in sight in the offing and profit margins were expected to remain under pressure.

The future of the Singur plant remains clouded, it felt. “Tata Motors has already invested Rs 1,500 crore for the plant…If the agitation continues, the company may have to roll out its first batch of Nano from its plant in Uttarakhand,” Sharekhan said in a recent report.

Mr Nikhil Saboo of Microsec, which has reiterated “neutral” view on Tata Motors, said relocation would obviously mean loss.

But, Mr V.K. Sharma of Anagram Securities, however, felt that Tatas would be able to shift their Nano plant with greater incentives from other States, which will minimise the loss. Anagram has recommended, “Sell on rallies”.

Mr Piyush Parag of Religare also felt shift from Singur might not make much of a difference for Tata Motors outlook.

Rating shift

Angel Broking’s automotive analyst also felt the same way.

However, the brokerage has shifted its rating on Thursday. “Considering the risks applicable to the consolidated entity, effects of the dilution owing to the rights issue and conservatively assuming $100 million profit in CY2009E for J&LR at 0.8 per cent NPM (global peers have NPM in the range of 2-3 per cent), we assign a target multiple of 9x FY2010E consolidated earnings to the stock. Thus, considering limited downside from current levels, we upgrade the stock to accumulate from neutral, with a target price of Rs.445,” said Ms Vaishali Jajoo of Angel.

Post announcement of the J&LR deal and Tata Motors equity dilution plans, Angel had downgraded the stock to “neutral” from “buy”. It said the current market price factors in the equity dilution of 33.3 per cent.

Angel felt that this fiscal would be difficult for the company, if the country’s economic growth slows down further and interest rate scenario did not improve.

It also was undecided about valuation of J&LR business, which could contribute more than 50 per cent of the consolidate turnover.

The stock today finished at Rs 428.80, down 0.24 per cent. However, in the past one week it has improved by 2.67 per cent.

More Stories on : Stocks | Rights Issue | Tata Motors Ltd

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Bharti AXA Equity Fund launched

Resurgere Mines turns volatile after strong debut

Brokerages turn cautious on Tata Motors

HCL Tech rises on buzz of an overseas buyout

Nano uncertainties may cloud Tata Motors

Bank Nifty futures turn active

M&A: SEBI for independent opinion on fair value

KEC International (Rs 426.5): Buy

Banks gear up for new IPO payment facility