**[investwise]** Daiwa Raises Target On Tata Motors To Rs 920

 

Tata Motors has divested 20% stake in its construction equipment subsidiary Telcon to Hitachi for Rs 11.6bn. Hitachi now has the controlling stake with 60% stake in the business.   Impact    We expect the proceeds to be used to repay debt and reduce the leverage on the balance sheet. We estimate automotive debt/equity would reduce to 0.9x by the end of FY12e (from 2.7x currently) if cash proceeds were used to repay debt.   Expected cash proceeds are: a) Tata Motors sells 49% stake in Tata Motor finance at Rs 6.4 billion (valued at 1x FY09 P/BV), b) Rs 48 bn of free cash flow generated from domestic business and c) Rs 11.6 bn stake sale in Telcon.    We have increased our target price to Rs 974 (from Rs 922) as we now value Telcon at a 20% discount to the current deal valuation. Our estimated value for Telcon increases from Rs 6/share to Rs 41/share as we take the current deal as the benchmark for valuations from P/E methodology earlier. Our subsidiary value estimate increases to Rs 117/share from Rs 90/share previously.    Our consolidated earnings estimate have been increased by 2.7-3.4% in FY11-FY12e factoring in cash proceeds and increase in minority interest.   Valuation    The stock currently trades at 8.7x on our FY12e consolidated estimates.   Catalysts and action    Develeraging of balance sheet and improvement in Jaguar and Land Rover operations are key catalysts for stock performance. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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