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Tata Motors + Maruti Udyog – Buy or Hold

October 2, 2007

Tata Motors – Weak Sales
Weak domestic sales (down ~3% YoY); strong exports (+16%YoY) mitigated the impact somewhat. Within the domestic segment, MHCV sales fell 7%, whilst cars declined 4%. LCVs continued to exhibit strong growth (+13%) driven by product extensions of the ACE platform. Although sales fell Y/Y, sequentially (MoM) sales rose almost 22%, rising from an average of around 11k units to ~14k.

Interest rates are on a downtrend, with high credit quality clients reporting bulk CV deals at 10-10.25% (almost 400bps lower than the peak in Apr-May). For the broader industry, rates fell 200-250bps. TAMO management said incentives on trucks are minimal, while discounts on cars are now ~6-9% off face value, to push a jaded vehicle line. Citi maintains BUY with a price target of Rs 1,029.

Maruti Udyog Ltd – Sales Rise in September
Domestic sales rose 11%Y/Y (vs17.5% YTD), hampered by a strong base effect, which management indicated will temper growth rates over 2HFY08 too. The last few days of September were also hit by a religious festival, when consumers typically eschew vehicle purchases. Exports rose 55% Y/Y, 51% YTD as it continues to increase penetration in new African and Latin American markets (FY08 target of 55000 units appears achievable).

MUL has maintained its market share at 51% in Aug, with the main gain being c3.3% in the key A2 segment – driven by the Swift variants. Near term, Swift diesel might face competition from the newly launched Getz diesel (~9% more expensive than the Swift diesel).
Citigroup maintains a hold on Maruti Udyog with a price target of Rs 945.

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