Stock recommendation: Tata Motors
Target price: Rs 351
CMP: Rs 333
Tata Motors’ India business has created three new groups– strategy group to have a enlarged view on the business prospects and strategies going ahead, central purchasing group to be a single point of purchasing and program planning organisation group to streamline planning of various business programs within the organisation. All three Groups would be reporting to Mr. Karl Slym, MD, Tata Motors and have been created to channelize energies more efficiently towards business operations.
Over the past 3 months (from the time Mr. Karl Slym joined Tata Motors) the company has identified problem areas in its car business namely product quality issues, perception as a ‘taxi’ product and Tata Motors’ cars are not as frequently and effectively refreshed as those of peers.
Going ahead, the focus would be on new product development across platforms and engine sizes and improving brand equity of Tata Motors models. To this end, the company has laid down capex plans of >Rs30 bn p.a. on India business over the next 3-5 years, of which >50% would be spent on PVs, with primary focus on new products (it already has capacities in place and hence not much will be spent on capacity expansion). It has set up R&D centre in Pune, which would further boost its product development capabilities. The focus would also be on enhancing customer experience through improved after sales service, which in turn would aid in improving brand equity.
In addition, the focus on exports is also likely to increase, which will also aid in better capacity utilisation. The company is looking at optimising synergies between Tata Motors PVBU and JLR, with focus being on back-end, which includes, sourcing, designing, etc. It categorically stated that
front-end of both the car brands would remain separate.
On Nano, management admitted that the product was positioned wrongly as a replacement for 2-w or a product which is affordable to lower section of the society. The company will reposition Nano as a second vehicle in metros, a first vehicle in smaller cities, a product that provides parking convenience, and expects better volume traction going ahead.
The meeting was focused on India business and the company seems to be on the right track in terms of the initial strategies being in place, especially for its car business. Tata Motors remains our top pick in Autos, led by improved volume traction at JLR over next few months led by starting of dispatches of new Range Rover, which in turn will boost realisation and margin. Also, JLR has strong product pipeline over next 2-3 years with new RR launch, followed by RR Sport in H1FY14, F-Type in CY13, variants of Jaguar models and smaller Jag in CY14. Maintain BUY with price target of Rs 351.
Sourcs: IDBI Capital
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