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Export growth remains weak
STOCK UPDATE
Tata Motors
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,075
Current market price: Rs774
Good performance
Sales highlights
- Tata Motors (TAMO) has reported decent numbers for February with an overall growth of 19% as its total sales rose to 53,707 units in the month from 45,113 units last February.
- The growth in the commercial vehicle segment continues to be strong despite the high base of last year. The segment recorded a 22% growth in February. The medium and heavy commercial vehicle segment saw a growth of 19.4% while the light commercial vehicle sales grew by 25.3% year on year (yoy).
- The passenger car sales were slower in February compared with that in the earlier months, with an overall growth of 12.8%. Indica reported sales of 12,580 units (up 19% yoy) while the Indigo family registered a decline of 6% in sales.
- The utility vehicle segment reported a phenomenal growth of 40.7% during the month, led by the strong sales of both Sumo and Safari. Safari sales grew by a staggering 258% to 2,009 units.
- TAMO's exports for the month stood at 4,526 vehicles as compared with 4,257 vehicles in February 2006. That's a growth of 6% yoy.
- At the current market price the stock is trading at 12.3x its consolidated FY2008E earnings and at an enterprise value/earnings before interest, depreciation, tax and amortisation of 6.4x. We remain bullish on the stock and maintain our Buy recommendation with a price target of Rs1,075.
SECTOR UPDATE
Information Technology
Minimal impact on earningsThere is a growing consensus among tax consultants and the management of the leading information technology (IT) companies that the levy of the minimum alternate tax (MAT) would have a minimal or absolutely no impact on the earnings of IT companies.
To put it in perspective, the IT companies would have to pay additional tax on income from the Software Technology Park (STP) registered units (@ of 11.3% now), resulting in cash outflow to the tune of 1-2.5% of their revenues. However, the same would not get reflected in their profit & loss account due to the creation of a deferred tax asset. That's because the MAT payable in FY2008 and FY2009 can be carried forward and be set off against the full tax payable on the income from the STP registered units with effect from FY2010. This largely eliminates the concerns related to a possible decline of 3-6% in the earnings
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