TATA MOTORS DVR: PREFER OVER ITS EQUITY SHARES !!!

Scrip Code: 570001 / TATAMTRDVR

CMP:  Rs. 168.40; Buy at every dips.
Medium to Long term Target – Rs. 180; STOP LOSS – Rs. 154.92; Market Cap: Rs. 8,116.19 Cr; 52 Week High/Low: Rs. 189.90 / Rs. 116.10

Total Shares: 48,19,59,190 shares(17.79% of Share Capital); Promoters : 42,53,587 shares –0.88 %; Total Public holding : 47,77,05,603 shares – 99.12 %; Book Value: Rs. 60.65; Face Value: Rs. 2.00; EPS: Rs. 3.70; Dividend: 205 % ; P/E: 77.11 times; Ind. P/E: 35.99; EV/EBITDA: 21.37. Total Debt:  Rs. 1,970.97* Cr; Enterprise Value: Rs. 19,213.20* Cr.

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

TATA MOTORS LIMITED: Tata Motors was founded in 1945 as a Public Limited Liability Company under the Indian Companies Act VII of 1913 as Tata Locomotive and Engineering Company Ltd and changed its name to Tata Engineering and Locomotive Company Limited (TELCO) in 1960 and later on it again 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 three passenger car manufacturers in India and world's fourth largest truck manufacturer and is also 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. 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 popular brand of British car manufacturing company Ford Motors, Jaguar was bought at $238 Cr from General Motors in 1989 and Land Rover was bought from BMW for $300 Cr in the year 2000) which was acquired in 2008 by Tata Motors at $230 Cr ($60 Cr for JLR Pension fund + $170 Cr to Ford motors) 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 which was launched in 2011 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 Toyota Motors Corp of Japan, Mazda Motor Corporation of Japan, Suzuki Motor Corporation of Japan, Jardine Cycle & Carriage ltd of Singapore and Bayerische Motoren Werke AG (BMW), Audi AG, Daimler AG, Volkswagen AG of Germany, Ford Motors of USA and Mitsubishi Corporation.

Investment Rationale:

Range Rover Evoque 5 door

Tata Motors is India's largest automobile company and its most profitable subsidiary Jaguar & Land Rover recently launched the all-aluminium bodied new Range Rover which witnessed a huge response. This is the first major platform change for the product in 10 years. Given the fact that there was no platform change over the last decade & so there could be a good demand for the new Range Rover and the upcoming product launches on the new platform. In addition to the new Range Rover, JLR is likely to start the wholesale sales of the new Range Rover Sport by June’13. These two products, coupled with stable volumes from newly launched model Evoque are likely to lead to a 12.6% CAGR in volumes for Land Rover for FY12 to FY15E period. Jaguar has a very limited product range, with just three models - XF, XJ and XK - in the higher-priced segments. To increase its addressable markets, Jaguar has planned to have few new launches. At the same time XF and XJ with a 2 liter engine have been launched in China which is expected to lead to better pricing as it would attract lower consumption tax. Chinese market is driven by outright cash purchase (Cash & Carry) and the products are priced at 25-40% premium on account of strong demand for luxury brands this will also boost its revenue from China. In addition, Jaguar will launch a new F-type sports car by Q1FY14. JLR benefits when the GBP £ weakens against the Dollar $. As a result, 1% depreciation of GBP £ against USD $ improves its EBITDA margins by 0.50%. Similarly it benefits when GBP £ appreciates against EURO €. As a result, 1% appreciation in GBP £ against EURO € improves its EBITDA margins by 0.15-0.20%. JLR payables are 60% in GBP £ and 40% in Euro €. Given that JLR buys about 40% of its components from Europe & than it sells about 20% vehicles in that continent, hence JLR is a net importer of 20% in Euro € terms. As a result, it benefits when the GBP £ strengthens against the Euro €. Increase in addressable segments, forex fluctuations coupled with new products launches, would lead to a growth of about 20.0% CAGR in volumes over FY13-FY15E period for TATA MOTORS.

Outlook and Valuation:

Tata Motor’s new launches at JLR, including the all‐aluminium bodied Range Rover have generated huge positive response from the customers which shows it potential to command higher market share & so such high PE multiples. The long term investors can buy the Tata Motor DVR in view of attractive valuation. The long term holders of ordinary shares of Tata Motor can switch to Tata Motor DVR. The Tata MotorsDVR shares carry 1/10th of voting rights and shareholders are entitled to a 5% higher dividend than ordinary shares in lieu of surrendering their voting rights. Tata Motors DVR  currently trades at a discount of 40.96 %. The average discount for the DVR to Tata Motors ordinary share was 38.6 % since inception. The average discount for the DVR share over the last two years has been 39.3 %. At the Current Market Price of Rs. 168.40, the DVR is trading at a 40.96 % discount to Tata Motors’ ordinary share which is at Rs. 285.25. At the current levels, the probability of the discount narrowing is higher. On SOTP basis the valued of Tata motors comes at Rs. 281.60 and applying 40% discount to it gives DVR valuation at Rs. 169. One can buy Tata Motor DVR at all lower levels and on every dips for better returns. 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  a 30-35% discount to its EQ SH. TTM DVR can be a good ‘BUY’ with a target price of Rs.180 for the medium to long term. Expect discount to the Equity shares reduce to at least 30 % over next one year given the attractive valuations and increasing free float. 

SOTP valuation (FY2013E)

BUSINESS SUBSIDIARY	Value per Share(₹)
Core Business	47.00
Jaguar Land Rover Plc (3.5x FY13E EV/EBITDA)	272.00
Tata Daewoo Commercial Vehicle Co. Ltd	3.00
Tata Motor Finance Ltd	4.00
Tata Technologies	2.00
Value of Other Subsidiaries	24.00
TOTAL VALUE	352.00
Less: 20 % Holding Company Discount	70.40
TOTAL VALUE PER SHARE	281.60

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (₹ Crs)	165654.50	184759.50	224919.20	258004.70
NET PROFIT (₹ Cr)	12,522.40	9,471.60	12,678.20	15,430.60
EPS (₹)	39.50	28.40	38.00	46.30
PE (x)	7.30	10.20	7.60	6.30
P/BV (x)	2.80	2.30	1.90	1.60
EV/EBITDA (x)	5.10	5.00	4.00	3.40
ROE (%)	47.90	25.30	27.30	27.5
ROCE (%)	21.60	13.30	15.20	16.40

I would buy TATA MOTORS DVR with a price target of ₹ 180 for Medium to Long term target. 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 ₹ 154.90 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

*As the author of this blog I disclose that I do hold TATA MOTORS DVR in my investment portfolio. 

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GURU's ON WEALTH !!!

GURU's ON WEALTH

In Ramayana, Guru Vashistha explains to Lord Rama that in this world, wealth is the most important thing. There is not much difference between a poor and a dead person. A wealthy person seeking after DHARMA and Prosperity will succeed at all cost but the poor person striving for prosperity will find it difficult to attain.

Sage Vyasa writes in Mahabharata, that through wealth one attains DHARMA, KAMA, and MOKSHA. Even day-to-day life in this world is not possible without wealth in hand. Hence, the ARTHA is important for the rest of the three - DHARMA – KAMA – MOKSHA.

The great economist Chanakya writes in his sutras that the root of human happiness lies in Dharma, and the root of Dharma is wealth and prosperity. The motive of any Karma or action is the gain of wealth and prosperity which bestows Dharma and Kama. Chanakya has also mentioned in his work that one who has wealth and prosperity has friends and relatives and only then he is considered as a man and he is able to live his life according to his wishes…

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BERGER PAINTS INDIA LTD : A NEW DEFENSIVE !!!

Scrip Code: 509480 / BERGEPAINT

CMP:  Rs. 193.05; Buy at Rs. 185 - Rs. 195 levels.
Medium to Long Term Target: Rs. 215; STOP LOSS – Rs. 177.60; Market Cap: Rs. 6,685.12 Cr; 52 Week High/Low: Rs. 212.65 / Rs. 109.50.

Total Shares: 34,62,89,948 shares; Promoters : 25,97,17,461 shares –75.00 %; Total Public holding : 8,65,72,487 shares –25.00 %; Book Value: Rs. 24.39; Face Value: Rs. 2.00; EPS: Rs. 6.00; Dividend: 70.00 %; P/E: 32.17 times; Ind. P/E: 38.96; EV/EBITDA: 11.92.

Total Debt: 169.80 Cr; Enterprise Value: Rs. 6,670.92 Cr.

BERGER PAINTS INDIA LTD: The Company was founded in 1760 but started its business in Kolkata, India on 17th December 1923. The company was then known as Hadfiled's (India) Ltd. The company has undergone many change of hands – In the year 1947, it was acquired by British Paints (Holdings) UK, which renamed the company as British Paints (India). This UK Company was then acquired by Celanese Corporation, which later sold the Indian company to Berger, Jenson Nicholson Ltd in 1969. In 1983, the company was renamed as Berger Paints India and it started using the trade name of Berger. Berger Paints engages in the manufacture and sale of various decorative and industrial paints in India and internationally. The company’s products include interior emulsions, designer finishes, dis-tempers, exterior emulsion, primer, texture finishes, enamels, cement mix, crack fill paste. The company also offers general industrial and automotive coatings, such as pre-treatment chemicals, water base primers, polyester topcoats, polyester-metallic/pearl base-coats, thermo-setting acrylic base-coats, thermo-setting acrylic clear coats, alkyd-amino topcoats, poly-urethane paints, quick drying paints, polyester surfacers, epoxy surfacers, alkyd amino HLPS, and heat resisting paints and powder and protective coatings. It serves home owners, professionals, and industrial users through a network of dealers. It has a wide variety of product portfolio including interior and exterior wall coatings as well as metal and wood paints. It currently operates 7 manufacturing facilities in India and more than 85 depots along with 4 facilities overseas and maintain a workforce of more than 2500 employees. It has a distribution network spanning to 15000 plus dealers. It has strong and well established brands like Berger Silk, Berger Rangoli, Berger Illusions, Berger Weather Coat, Jadoo Enamel, etc. It also provides color consultancy services. Berger Paints has six subsidiaries and two JVs located across geographies including Cyprus, Russia, Poland and Nepal. Berger Paints subsidiary includes Beepee Coatings Private Limited, Berger Jenson & Nicholson (Nepal) Pvt Ltd, Berger Paints (Cyprus) Ltd, and Berger Paints Overseas ltd. The company is locally compared with Asian Paints Ltd, Bombay Paints Ltd, Brushman (India) Ltd, Kansai Nerolac Paints Limited, Akzo Nobel India Limited, Jenson and Nicholson India Ltd, Jyoti Resins and Adhesive Ltd, Hardcastle & Waud Mfg.co.Ltd, Sarika Paints Ltd, Shalimar Paints Ltd and globally with Noroo Holdings Company Limited, Fujikura Kasei Co Ltd of Japan.

Investment Rationale:

Berger Paints India Ltd (BPIL) is one of the India’s foremost paint companies, currently ranked as 2nd largest on the basis of consolidated sales turnover in Indian paint industry. It enjoys about 19 % share of the over Rs. 21,000 Cr of the Indian paint industry wherein the organized sector accounts for 70 % while the remaining is with the unorganized sector comprising of around 2,000 small scale paint units. The Indian Paints Industry is estimated to be at US$ 380 Cr and is growing at 1.8-2 x the GDP growth since the last few years. This industry is dominated by top 4 players commanding more than 90 % share of the organized market. The per capita consumption of paints in India remains very low at 1.5 kgs as against 6.4 kgs in China & 15 kgs in USA & 10-13 Kgs of global average. This industry is categorized in two segments –Decorative paints -which contributes 70% and balance 30% belongs to Industrial paints -Comprising automotive and industrial, protective, powder, coil and marine coatings. A decorative paint constitutes 80% of Berger Paints sales and enjoys strong brand equity in the eastern regions. Taking into account the rising consumer demand and diversified needs, the paint companies are coming out with new variants of paints and considering Berger Paints's market share of about 19% surely the company will be benefited from the rising demand. The paint companies have now emphasized more on brand endorsement and have roped in top celebrities for their brand endorsements. The Indian paint industry witnessed positive growth in 2011-12. The decorative paints market is throwing up new opportunities for premium products which are technically superior. Higher purchasing power, backed by higher income levels, increased urbanization, rising construction activity in the housing segment and easy availability of housing loans are boosting growth in this segment. This is helped by the spread of audio-visual media, internet and communication facilities. Better living conditions and aesthetics now fetch a definite value. Company feels that there is still much potential in this sector. Growing awareness among retail consumers with respect to brand and quality is attracting  consumers to move towards the organized sector. There is marked tilt towards Eco-friendly products which are not harmful to human beings as well as the environment.

Outlook and Valuation:

Berger Paints India's promoters (Citland Commercial Credits Ltd, Wang Investment and Finance Pvt Ltd, Bigg Investments and Finance Pvt ltd, Vinu Dhingra & Kuldip Singh Dhingra) who collectively holds 75.54% in company, and in order to meet the minimum public shareholding norm of 25% had sold 18,72,222 shares of Rs.2 or 0.54% via Offer For Sale at an floor price of Rs. 185/share. UK Paints India, Berger Paints India's largest stakeholder has increased its stake by buying 3.5 lakh shares a 0.10% stake in the company in December 2012, the stake was brought from another promoter entity Meeta Dhingra for Rs. 151/sh amounting to Rs. 5.28 Cr. UK Paint held 45.56% as on the end of September quarter. Dhingra held 83.15 Lakh or 2.40% shares of Berger Paints as of September quarter. Berger Paints India Ltd.’s Net Sales and PAT of the company are expected to grow at a CAGR of 20 % and 22 % over the period of 2011 to 2014E respectively looking into stronger demand and introducing of new products. The Company has planned to set up manufacturing facility for Auto GI  for about 18,000 KL per annum, Protective Coatings - 12,000 KL per annum and Solvent Base Decorative Paints - 24,000 KL per annum at Jejuri near Pune. The Plant layout has been finalized. The Plant is likely to be commissioned in 2013. Berger plans to double its production capacity to 5,00,000 kilo liter per annum from 2,50,000 kl by 2013. Berger Paints is looking to expand its distribution channel from the existing 15,000 dealers to 19,000 in the next four years. Berger Paints India is India's first paint maker to foray into construction chemicals and is looking to generate a turnover of over Rs. 25 Cr from this segment in 2012-13. The management has considered adding 5000 tonnes of capacity each to its plants in West Bengal (Hooghly) and Goa (North Goa) at a cost of around Rs. 30 Cr for each plant. The capacity expansion at the Hindupur plant will cost around Rs. 80 Cr. The company is setting up a joint venture company, BNB Coatings India, with Nippon Bee Chemicals Co. of Japan to manufacture automobile plastic substrate coatings. It has technical license agreements with DuPont Performance Coatings (automotive coatings), Nippon Paint Co.(automotive coatings), Orica Australia (protective coatings), Tigerwerk Lack-u.Farbenfabrik GmbH & Co. KG, Austria (specialized powder coatings) and Nippon Bee Chemical Co. (coating on bumpers and other plastic parts). With the revival of the construction boom post recession also the resurgence of the automotive and consumer durable industries, the Indian paint industry is heading for an exciting phase of growth and profitability. Demand in case of industrial segment is also expected to increase going forward. Increased industrial paint demand, especially powder coatings and high performance coatings will also propel top line growth of paint majors in the medium term. A better focus on supply chain or distribution mechanism backed by aggressive promotion will drive the fortunes of the Indian paint industry like never before over the years to come. At the current market price of Rs. 193.05, the stock tradings at 29.29 x FY13E EPS of Rs. 6.59/share and 23.34 x FY14E EPS of Rs. 8.27/share. It is believed that going forward this discount should narrow due to the Gaining considerable size with a revenue CAGR and with the Product mix shifting towards higher growth & Increasing presence across India with rising penetration in the south makes this stock attractive to ACCUMULATE with a target price of Rs 215/share.

KEY FINANCIALS	FY11	FY12	FY13E	FY14E
SALES (Rs. Crs)	2,332.70	2,944.20	3,411.70	3,955.90
NET PROFIT (Rs. Crs)	150.00	185.80	228.30	286.40
EPS (Rs.)	4.33	5.37	6.59	8.27
PE (x)	40.61	32.79	26.70	21.28
P/BV (x)	7.20	6.10	5.10	4.30
EV/EBITDA (x)	25.80	21.06	16.62	13.31
ROE (%)	18.70	20.25	21.66	22.63
ROCE (%)	17.96	19.17	21.10	23.50

I would buy BERGER PAINTS (I) LTD with a price target of Rs. 215 for Medium to Long term target. 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. 177.60 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

*As the author of this blog I disclose that I do hold BERGER PAINTS in my investment portfolio.

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