Tata Motors will be impacted by strong headwinds of restricted financing in commercial vehicles and the low priced Nano car. The major reasons for the downgrade are – moderation in commercial vehicle sales on tight financing availability, margins decline on adverse sales mix and lower volumes, forex losses on weaker rupee and fallout impact on inter-related subsidiaries.
Tata Motors is expected to report an EPS of Rs 61 for FY09 and Rs 86.50 for FY10. In the medium term the stock is likely to be under pressure as Merill has set a price target of Rs 657.
Mahindra & Mahindra’s tractors sales is estimated to decline 5% in FY09 (earlier flat), and 5% growth in FY10, as financing intermediaries show reluctance to support tractor credit. The company’s inability to significantly raise prices in utility vehicles to compensate surge in commodity prices should pressure margins.
One of the key reasons for our previous positive view was the imminent listing of its leisure business subsidiary and thereby unlocking of value for minority shareholders. Given present market conditions, we believe it is unlike that Mahindra Holiday Resorts will fetch our benchmark value of $811mn (Rs106/share in M&M).
M&M is expected to report an EPS of Rs 72.80 and Rs 82.3 for FY09 and FY10 respectively. Merill maintains a SELL with a fair value price of Rs 657.