TATA MOTORS DVR LTD: A BEST DIVIDEND YIELD STOCK , A MUST BUY !!!

Scrip Code: 570001 / TATAMTRDVR

CMP:  Rs. 135.10; Buy at Rs.125-130 levels.
Short term Target: Rs. 151, 6 month Target – Rs. 177; STOP LOSS – Rs. 120.00; Market Cap: Rs. 6,510.91 Cr; 52 Week High/Low: Rs. 189.90 / Rs. 79.40

Total Shares: 48,19,33,115 shares(17.90% of Sh Capital); Promoters : 1,86,00,448 shares –3.86 %; Total Public holding : 46,33,32,667 shares – 96.14 %; Book Value: Rs. 62.74*; Face Value: Rs. 2.00; EPS: Rs. 3.89*; Div: 205 %* ; P/E: 57.71* times; Ind. P/E: 38.45*; EV/EBITDA: 18.27*.

Total Debt: 2,845.87 Cr; Enterprise Value: Rs. 9,356.77 Cr.

*Being DVR a class of equity capital, Tata Motors financials are used.

TATA MOTORS LIMITED: Tata Motors was founded in 1945 and was formerly known as Tata Engineering and Locomotive Company Limited (TELCO) and changed its name to Tata Motors Limited in 2003. The company is leading manufacturer of commercial & passenger vehicles in India and is among the top 3 passenger car manufacturers in India and the world's fourth largest truck manufacturer & world's Second largest bus manufacturer. Through its subsidiaries, the company is engaged in engineering and automotive solutions, construction equipment manufacturing, automotive vehicle components manufacturing and supply chain activities, machine tools & factory automation solutions. The company's Automotive operations include all activities relating to development, design; manufacture, assembly and sale of vehicles including all financing thereof, as well as sale of related parts and accessories. Tata Motors has operations in UK, South Korea, Thailand & Spain. The company has many subsidiaries but the most prominent among these is Jaguar-Land Rover (JLR) (a British car manufacturing company) which it acquired in 2008 at $230 Cr and turned it from a loss making company to a profit making company. JLR contributes 54 % to the company’s revenues. The company’s product portfolio ranges from the ultra low cost car Nano to the luxurious cars from JLR, from its ground breaking invention of the light commercial vehicle (LCV) the Ace to the international Prima Truck range. TATA MOTORS is compared to Mazda Motor Corporation, Suzuki Motor Corporation and Mitsubishi Corporation.

Investment Rationale:

Tata Motors is India's largest automobile company, last quarter JLR reported all-time high monthly volumes with both Land Rover and Jaguar rising 54 % and 9 %, respectively. This was been due to geographical demand fuelled by emerging markets like China, Brazil along with the developed markets of the US. In this fourth quarter, Tata Motors posted 16.7 % YoY growth in revenue in the automotive segment, whereas JLR reported a top-line growth of 65.7 % YoY. This led to an overall 44.3 % YoY growth in the company’s consolidated top-line to Rs. 50,900 Cr, EBITDA margin at JLR were at 14.6 %, the consolidated EBITDA margin improved by 30 basis points YoY to 14.1 %. EBITDA grew at Rs. 7,170 Cr. TATA MOTOR was accounted for a tax credit of Rs. 1,820 Cr on account of credit for carry forward of losses from JLR account. Profit After Tax grew by 86.1 % YoY to Rs. 4590 Cr. On Standalone basis, Tata Motors posted 14.4 % YoY growth in its top-line at Rs. 16,390 Cr. Its overall volumes grew by 18.4 % YoY, whereas average realization/vehicle declined by 3.3 % YoY on account inferior product mix skewed towards passenger cars. EBITDA margins on standalone basis improved by 0.60 % YoY to 9.6 % on account of tight control over other expenditure. As a result, EBITDA grew to Rs. 1560 Cr YoY. Profit After Tax on standalone basis grew by 22.8 % YoY at Rs. 780 Cr. The higher than expected standalone profit partially compensated for the disappointment at JLR. JLR reported 51.5 % YoY growth in revenue at ₤414.4 Cr, mainly led by a 48.2 % YoY improvement in volumes. Average realisation/vehicle declined by 2.3 % QoQ on account of inferior product mix skewed towards ‘Evoque’. Other expenses increased by ₤9 Cr on account of investment in new capacities. As an result, EBITDA margins declined by 2.40 % QoQ at 14.6 %. JLR PAT stood at ₤42.2 Cr as against ₤44 Cr in Q3FY12. This, in experts view, a big disappointment given that the volumes for the quarter were up by 11 % QoQ and currency impact was minimal. Management expects JLR volumes to be driven by launch of new Evoque in new markets, demand for newly launch Jaguar’s Model Year (MY) 2012 XF and ramp up operations in China. In Q2 FY12, Evoque was only launch in UK, Europe and US. Evoque has received buoyant response and has an order book of around 20,000 units after catering 8,000 units in Q2 FY12. It is in midst of launching Evoque in China and other developing markets, thus resulting in incremental Evoque volumes in H2 FY12. The company has started to ramp up the distribution network in China to 100 dealers by FY12E and is in advance talks with local partner for production in China. The company has largely resolved issues related to engine constraints with Ford. JLR is setting up a new engine manufacturing facility in UK, which entails an investment of £35.5 Cr. Net Automotive debt to equity stands at 0.3:1. JLR is likely to come up with two new launches i.e. Jaguar XF station wagon in Q3FY13E and new Range Rover platform in Q4FY13E. The company increased its guidance for a capex and R&D spends at JLR to ₤200 Cr as against the earlier guidance of ₤150 Cr. JLR completed an unsecured Revolving Facility totaling ₤71 Cr for 3-5 years thereby strengthening its liquidity position. Management sounded cautiously optimistic regarding volume growth at JLR in Europe and UK.

Outlook and Valuation:

The long term investors can buy the TATAMTRDVR in view of attractive valuation. The long term holders of ordinary shares of Tata Motor can switch to TATAMTRDVR. The Tata Motors DVR shares carry 1/10th of voting rights and shareholders are entitled to a 5 % higher dividend than ordinary shares in lieu of surrendering voting rights. Tata Motors DVR trades at a discount of 45.2 %. The average discount for the DVR to Tata Motors ordinary share was 36.7 % since inception. The average discount for the DVR share over the last two years has been 40.5 %. At the Current Market Price of Rs. 135.10, the DVR is trading at a 40 % discount to Tata Motors’ ordinary share which is at Rs. 224.55. At the current levels, the probability of the discount narrowing is higher. On Some Of The Parts basis the value of standalone business comes at 9x FY13 adjusted EPS of Rs. 5 to arrive at Rs. 45 and for JLR it comes at 5x EV/EBITDA to arrive at Rs. 183 and the valued of the investment book of the company comes at 0.2x BV for unquoted investments and market value of quoted investments to reach Rs. 9/share and arrived at our target price of Rs. 275. One can BUY TATA MOTOR DVR at all lower levels for better returns. It has outperformed the broader market by 6 % on an annual basis. Globally DVRs trends to trade between 10 % - 15 % discounts to its Equity shares, TTM DVR currently trades at 40 % discount to its Equity shares. One should buy TTM DVR at 40 % - 45 % discount to its EQ SH & Sell when DVR arrives at 10 % - 15 % discount to its EQ SH. TTM DVR can be a good ‘BUY’ with a target price of Rs.151 for the short term. Expect discount to the Equity shares reduce to at least 30 % over next one year given the attractive valuations and increasing free float. For the shorter term it can be a good BUY, with a price target of Rs. 151.

SOTP valuation (FY2013E)

BUSINESS SUBSIDIARY	Value per Share(Rs.)
Core Business (9x FY13E Stand.EPS)	45
JLR (5.0x FY13E EV/EBITDA)	183.00
Tata Daewoo	2.00
Tata Motor Finance	3.00
Tata Technologies	4.00
TML Drivelines	4.00
Value of Other Subsidiaries	14.00
Value Post Discount (20 % Holding discount)	11.00
Value of Investments (0.2 x BV of Investments)	9.00
TOTAL VALUE PER SHARE	275.00

KEY FINANCIALS	FY11	FY12E	FY13E	FY14E
SALES (Rs. Crs)	1,22,127.90	1,65,654.50	1,89,786.00	2,07,532.00
NET PROFIT (Rs. Crs)	9,042.50	12,522.40	13,811.70	14,699.00
EPS (Rs.)	28.40	37.50	41.10	44.10
PE (x)	9.70	7.30	6.70	6.30
P/BV (x)	4.60	2.80	2.80	2.70
EV/EBITDA (x)	6.20	4.30	4.20	3.70
ROE (%)	66.10	47.90	41.80	43.80
ROCE (%)	22.10	23.50	21.40	22.50

I would buy TATA MOTOR LTD DVR with a price target of Rs. 151 for Medium to Long term and Rs. 177 for the Short term players. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 120.00 on every purchase.
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PIPAVAV DEFENCE & OFFSHORE ENGINEERING LTD : BUY ON DIPS !!!

Scrip Code: 533107 / PIPAVAVDOC

CMP:  Rs. 81.00; Buy at current levels & On DIPS.

Medium to Long Term Target – Rs. 100; STOP LOSS – Rs. 74.50; Market Cap: Rs. 5,598.70 Cr; 52 Week High/Low: Rs. 92.70 / Rs. 50.10

Total Shares: 69,11,98,388 shares; Promoters : 29,95,76,180 shares –45.00 %; Total Public holding : 39,16,22,208 shares – 43.44 %; Book Value: Rs. 24.90; Face Value: Rs. 10.00; EPS: Rs. 1.16; Div:-- % ; P/E: 69.82 times; Ind. P/E: 24.60; EV/EBITDA: 35.48.

Total Debt: 2,020.75 Cr; Enterprise Value: Rs. 7,952.92 Cr.

Pipavav Defence and Offshore Engineering Company Ltd: Pipavav Defence and offshore engineering Company is promoted by SKIL Infrastructure was formerly known as Pipavav Ship Dismantling and Engineering Limited and changed its name to Pipavav Shipyard Limited in April 2005 which again changed to its current name on 29^th September,2011. Pipavav Defence and Offshore Limited were incorporated in 1997 and are based in Mumbai, India. The company engages in the defence ship-building, and construction of offshore oil and gas assets, as well as provision of commercial ship-building and repairs, and heavy engineering services in India. Pipavav is the only private shipyard in India to have license to produce frontline warships from the Govt. of India giving it significant opportunities in the defence space. The company also offers very large crude carriers, suezmax tankers, aframax tankers, capesize bulk carriers, panamax bulk carriers and tankers, handymax and handysize bulk carriers and tankers, and product and chemical tankers; and specialized vessels, such as LNG carriers, LPG carriers, reefers, containerships, offshore support vessels, ferries, and dredgers. It also provides offshore platforms, which include rigs, jackets, and single buoy mooring systems; naval vessels; and ship repair services, such as refit/dry docking, a-float repair, and conversions. Pipavav Defence & Offshore Engineering Limited is the largest shipyard in India and the 5th largest in the world in terms of its size (400000 dwt). Pipavav’s dry dock capacity is larger than top 5 yards in India put together. The Company has two units, one Special Economic Zone (SEZ) unit spread over around 95 hectares of Land and another Export Oriented Unit (EOU) Unit spread over around 103.92 hectares of Land. The Company is engaged in the Pipavav Shipyard project. Pipavav Shipyard is a shipbuilding, ship repair and offshore fabrication complex being constructed by the Company at Pipavav in the State of Gujarat, India. The complex is spread over an aggregate area of 198.92 hectares (approximately 491.53 acres), comprising a SEZ unit spread over 95 hectares (approximately 234.75 acres) and an EOU spread over 103.92 hectares (approximately 256.79 acres). The Pipavav Shipyard is situated on the west coast of India on the Dubai-Singapore sea route. The company is compared with ABG Shipyard Limited locally and globally with Boustead Heavy Industries Corporation Berhad and Coastal Contracts Bhd.

Investment Rationale:

India is set to spend Rs. 60,000 Cr over the next five years on improving its military infrastructure. Due to the 'Buy Indian, Make Indian' policy put in place by the Ministry Of Defence, a large part of this sum will go to domestic companies. Even in case of imports, there is an offset clause that benefits domestic companies. For any defense contract for capital purchases of over $60 million (Rs.324 Cr), the foreign vendor is required to allocate 30 % of the contract value to Indian players, primarily in the defense, internal security and civil aerospace sectors. According to the Ministry of Defense (MOD), there could be an offset opportunity of $15 billion over the next five years this also envisages a greater role for the private sector, which should benefit established players like PIPAVAV & it enjoys first mover advantage and best-in-class infrastructure in the ship-building segment. It operates the second largest ship-building capacity in the world. PIPAVAV uses modular construction technology, with two 600MT Goliath cranes, which enables it to reduce the construction and delivery time of vessels. Further, it enjoys strong strategic partnerships with several international players, which should aid robust warship order booking in the near future. MOD's growing stress on indigenization and its Mazgaon JV should boost order intake. PIPAVAV's current capacity stands at $1.7 billion (in terms of revenue potential) are likely, to shoot up to $2.5 billion once the second dry dock becomes operational by 2014. The private sector defence business is at a nascent stage in India & with the various government initiatives encouraging indigenization and private sector participation, it is believed that the defense orders offers immense opportunity to private sector players. PIPAVAV is well placed ahead of the curve to exploit this opportunity in the next few years with its global-sized assets and best-in-class tie-ups. Also, PIPAVAV offers the only credible large-size exposure for investors to India's defence business.

Outlook and Valuation:

India imports 70 % - 75 % of its defence requirement from the foreign nations. The government aims to reduce its dependence on imports by encouraging indigenization, with the introduction of the ‘Buy Indian, Make Indian’ category in its defence procurement policy. The increasing stress on indigenization is also the result of several bitter experiences that India has had in sourcing defence equipment from overseas. For instance, India had once placed an order for a Scorpion submarine with France. The order was executed with a delay of four years and the eventual cost was four times its original cost. Similarly, the Indian Navy’s order for a Gorshkov Class Aircraft Carrier witnessed a price escalation of 3x. Such experiences led Defence Ministry to initiate the policy of ‘Buy Indian, Make Indian’. The government has also suitably modified its policies to allow greater participation by domestic private sector companies. The Ministry Of Defence (MOD) has directed public sector companies to enter into partnerships with private players that have the requisite capabilities and foreign collaborations. For instance, the MOD has decided to liquidate the piling orders of government shipyards to private players like PIPAVAV and L&T. PIPAVAV operates the second largest shipbuilding capacity in the world, capable of constructing vessels up to 400,000DWT. Hyundai Heavy, the largest shipbuilder has a total capacity of 10,00,000 DWT. PIPAVAV intends to become the world's largest shipbuilding company after completing the conversion of its second wet dock facility to a dry dock. It has a shipbuilding, ship repair and offshore fabrication complex spread over 750 acres with 720 meters of sea front and 685 meters of outfit quay, including two Goliath cranes of 600 tons each, which service the dry dock and the adjoining pre-erection berth, enabling PIPAVAV to handle up to 1,200 tons of pre-outfitted ship blocks. A host of other technologically advanced infrastructure makes PIPAVAV one of the most modern shipyards in the world. Any new private player wishing to enter this sector would need at least 8 to 10 years to set up such a kind of facility as compared to PIPAVAV. The Land acquisition, required environment clearances, construction, license procurement and technology tie-ups can take an average of 10 years to the new player who wishes to enter this sector. This gives an established player like PIPAVAV an added advantage. PIPAVAV uses modular construction technology, which enables it to reduce the construction and delivery time of vessels, as it is able to simultaneously work on different orders. It has a separate shipbuilding facility, which breaks down a complete ship into separate blocks for construction, which include cutting, forming, blasting, painting, steel stacking, treatment and welding. The dock is used to only assemble mega blocks with the help of two installed Goliath cranes. PIPAVAV is well placed/ahead of the curve to exploit the massive opportunity that India's defence sector offers in the next few years. It has globalsized assets and best-in-class tie-ups. Also, PIPAVAV offers the only credible large-size exposure for investors to invest into Indian defence sector. Hence, the Fair value for PIPAVAV DEFENCE, based on replacement cost method comes at Rs. 6,700 Cr which translates in to Rs.100/share. The company can post an EPS of Rs.0.8 for FY12 and Rs.1.2 for FY13E. The Board meeting will be held on 30th May 2012 to consider and approve the audited financial results of PIPAVAV DEFENCE & OFFSHORE ENGINEERING LTD for the year ended 31st March 2012.

KEY FINANCIALS	FY10	FY11	FY12E	FY13E
SALES (Rs. Crs)	629.40	860.00	1,820.00	2,460.00
NET PROFIT (Rs. Crs)	-48.20	40.00	50.00	80.00
EPS (Rs.)	0.00	0.60	0.80	1.20
PE (x)	0.00	127.90	95.50	62.70
P/BV (x)	3.20	2.90	2.60	2.30
EV/EBITDA (x)	00.00	43.70	18.20	12.80
ROE (%)	00.00	2.30	2.90	3.90
ROCE (%)	0.00	4.90	7.70	9.10

I would buy PIPAVAV DEFENCE & OFFSHORE ENGINEERING LTD with a price target of Rs. 100 for Medium to Long term. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 74.50 on every purchase.

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ARE MARKETS FOR FEW !!!

Hi friends,

I got some alerting data on Markets - which are on data dated 2010 - there were 31 lakhs registered customers/investors on NSE from which only 2 lakhs (6 %) of these had done 90 % of the total volume on NSE. Looking minutely at this data we get that - 50 % of the exchange turnover was done by only 450 customers, 60 % of the exchange turnover was done by only 1500 customers, 70 % of the exchange turnover was done by only 8700 customers, and 80 % of the exchange turnover was done by only 41,000 customers.

Let’s have a look at DERIVATIVES - which is shocking that only 3.77 % dominates nearly 90 % of total F&O Turnover. There were 5.5 lakhs customers who do DERIVATIVES trading from which only 3.77 % controls nearly 90 % of the total derivatives turnover. THIS IS DISGUSTING !!!

After knowing that only a few runs the cash & F&O segment more shocking is that only a few scrips are concentrated for the trading, there were only 10 scrips which contributed 24 % of the Cash segment volume, whereas only 10 scrips contributed 38 % of total derivatives turnover.

WE SAY THAT OUR MARKETS HAVE MATURED ..IS THIS THE MATURITY ....ARE WE RUNNING MARKETS FOR FEW PEOPLE ...????
ARE THE NEWS FLOWS OR REPORTS TO FOOL INNOCENT INVESTOR WHO PUTS HIS HARD-EARNED MONEY...WHO'S GOING TO LOOK INTO THIS... I AM SURE THAT EXCHANGES & THE MARKET REGULATOR MUST BE HAVING FAR MORE DEEP DATA THAN THIS....AND THAT's THE REASON BUY FUNDAMENTALLY STRONG COMPANIES..WHICH DEFINITELY GIVES YOU GREAT RETURNS IN THE LONG RUN !!!
WE NEED TO BE ALERT.....

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