Citigroup downgrades Tata Motors risk rating to High
Citigroup Global Markets has downgraded Tata Motors risk rating from Medium to High.
By ET Online |
MUMBAI: Citigroup Global Markets has downgraded Tata Motors risk rating from Medium to High. It has also revised its target price for the company sharply by 66 per cent to Rs 163 (from Rs 473 earlier) and is cautious on the company despite sever price correction in the stock.
The target price is based on the sum of parts valuation wherein Tata Motors' core business is valued at Rs 120 per share on diluted equity while investments and subsidiaries is valued at Rs 35 per share and rest coming from Jaguar/Land Rover.
Citigroup has reduced its consolidated profit estimates by 69 per cent and 37 per cent respectively for FY09 and FY10E. This is to reflect concerns over the domestic CV cycle, cut in Nano volumes factoring in transfer of the plant to Gujarat and decline in JLR volumes. EBITDA Margins are expected to decline by 40 basis points in FY09E; however they will inch up by 50 bps in FY10e to reflect lower steel and aluminium prices.
The outlook for recently acquired JLR has deteriorated due to recession in its key markets namely the US and EU and the funding risks from refinancing $3 billion of JLR debt will remain an overhang on the company's stock.
On the domestic front, while the demand especially for commercial vehicle (which contributed 50% to revenues) is weakening due to economic deceleration, passenger car business is facing competitive pressures, limiting pricing power and lowering profitability.
The target price is based on the sum of parts valuation wherein Tata Motors' core business is valued at Rs 120 per share on diluted equity while investments and subsidiaries is valued at Rs 35 per share and rest coming from Jaguar/Land Rover.
Citigroup has reduced its consolidated profit estimates by 69 per cent and 37 per cent respectively for FY09 and FY10E. This is to reflect concerns over the domestic CV cycle, cut in Nano volumes factoring in transfer of the plant to Gujarat and decline in JLR volumes. EBITDA Margins are expected to decline by 40 basis points in FY09E; however they will inch up by 50 bps in FY10e to reflect lower steel and aluminium prices.
The outlook for recently acquired JLR has deteriorated due to recession in its key markets namely the US and EU and the funding risks from refinancing $3 billion of JLR debt will remain an overhang on the company's stock.
On the domestic front, while the demand especially for commercial vehicle (which contributed 50% to revenues) is weakening due to economic deceleration, passenger car business is facing competitive pressures, limiting pricing power and lowering profitability.
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