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Hi, I am Bhavikk Shah, born and raised in the city of dreams - "Mumbai". I work as an Equity Analyst for mumbai based capital market firm. A simple person, a keen reader & a person open to new ideas that promote growth & development. I am a keen observer of events and trends, I... More
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    Scrip Code: 533146 / DLINKINDIA

    CMP: Rs. 162.15; Market Cap: Rs. 575.71 Cr; 52 Week High/Low: Rs. 251.80 / Rs. 95.60. Total Shares: 3,55,04,850 shares; Promoters : 1,81,14,663 shares -51.02 %; Total Public holding : 1,73,90,187 shares - 39.62 %; Book Value: Rs. 37.87; Face Value: Rs. 2.00; EPS: Rs. 5.73; Dividend: 35.00 %; P/E: 28.27 times; Ind. P/E: 21.65; EV/EBITDA: 17.53. Total Debt: Rs. 3.51 Cr; Enterprise Value: Rs. 576.15 Cr.

    D-LINK INDIA LTD: D-Link India Ltd was founded in the year 2008 and is based in Mumbai. D-Link (India) Limited was formerly known as Smartlink Network Systems Limited. Company is a subsidiary of D-Link Holding Mauritius Inc. D-Link (India) Limited engages in the marketing and distribution of networking products in India and SAARC countries. It primarily offers digital home, easy portal, home servers, security box, Internet protocol (NYSE:IP) device integration and wireless routers, as well as carrier switches, broadband digital subscriber lines (NYSE:DSL) and DSL access multiplexers, integrated access devices, cable modems, voice over IP, passive optical network, rural connective platform outdoor wireless bridges, digital home appliances, network storage, and IP surveillance and multimedia devices for customers and service providers. The company also provides metro network, access network, premises network and home entertainment focusing on the provision of backend infrastructure services to customers at various levels, such as service distribution, aggregation, and access and premise networks. The company sells its networking products to distributors, original equipment manufacturers and system integrators, as well as for the enterprise and small and medium business segments in the government, hospitability and education sectors. It also exports its products. D-LINK INDIA LTD can be locally compared Salora International Limited, Computech Intl. Ltd, Redington India Ltd, Vintron Informatics Ltd, Zenith Computers Ltd, Encore Software Ltd and globally with Emulex Corp of USA, Emcore Corp of USA, Digi International Inc of USA, Cisco Systems Inc of USA, Intel Corporation of USA, Qualcomm Inc of US, United Technologies Corp of USA, Netgear Inc of USA, Novatel Wireless Inc of USA, Netas Telekomunikasyon A.S. of Turkey, Transmode AB of Sweden, Pace Plc of London, Alpha Networks Inc of Taiwan, Hitachi Kokusai Electric Inc of South Korea, Humax Co, Ltd of South Korea, Wave Electronics Co, Ltd of South Korea, Wistron NeWeb Corporation of Taiwan, Ceragon Networks Ltd of Isreal, Inter Far East Engineering Public Company Limited of Thailand, Marco Holdings Berhad of Malaysia, Startia Inc of Japan, Gremz, Inc of Japan, Aiko Corporation of Japan

    Investment Rationale:

    (click to enlarge)

    D-Link (India) Limited was incorporated in 2008. D-Link (India) Limited is a subsidiary of D-Link Holding Mauritius Inc. D-Link India is in business of marketing and distribution of networking, broadband, digital, voice, and data communications products of its parent D-Link Corporation, Taiwan in India. D-Link Corporation, Taiwan is globally renowned for its networking products and solutions and has a presence in 67 countries with a wide range of products. D-Link India distributes switches, routers, modems, voice over Internet protocol products, surveillance equipment, print servers, Ethernet cards, and broadband equipment. India is expected to witness a data boom similar to the voice boom witnessed in 2008. The total number of internet connections is expected to reach 463 million by FY18E (as per FICCI KPMG). The national optic fibre network as proposed by the new government will facilitate the New Telecom Policy (NTP 2012) targeting 600 million broadband users by 2020. Currently, India has about 55 million fixed and mobile broadband users. The Indian networking industry is undergoing a rapid transformation with the advent of new technologies, higher bandwidth and high speed wireless connectivity. The growth in this sector is likely to be accelerated as the economy steadily moves to a higher gear in 2014-15 driven by a gradual revival in industrial production, stable agri-sector activity, steady services growth and easing inflation. With the economy poised to grow at a steady pace, Enterprises are investing towards setting up a strong networking infrastructure that can deliver reliable and efficient end-to-end solutions which eventually transforms their productivity from business operations. The roll out of 4G services and the significant government initiatives in aggressively promoting broadband usage in the country are driving the demand of networking products like routers, modems, switches and access points to storage and surveillance products across all verticals. The number of computing devices, PCs, tablets, smart phones has increased rapidly in India and networks, especially wifi networks, need to be deployed to share information and resources across users and devices. Indian users are upgrading their networks to take advantage of complex applications, advanced communication capabilities and rich multimedia content. Indian users need the convenience and flexibility of operating their various devices in an increasingly mobile or wireless manner. Similarly, market demand for television connectivity products has increased as users seek to connect their televisions to internet and for entertainment content. These developments augurs well for D-Link India, and with the networking industry in an expansion mode, the company looks forward to sound long term growth prospects. D-link supplies complete range of switching solutions including switches, L3/L2 managed web-smart and un-managed switches. D-Link is the market leader in port shipment of switches with market share of 30 %. The demand for switches are driven by bandwidth intensive applications like streaming video, VoIP and high-end multimedia and the rising demand for gigabit switches are driven from large enterprises and service providers and D-Link carters to all. D-Link's Product portfolio includes business class access points, unified switching solutions and long distance wireless systems. D-Link is the market leader by volumes in WLAN category with 40 % market size. Expansion of the smart phone market has helped D-Link to profitably position its products like mydlink, mobile companion and 3G in a leading space. D-Link also offers a wide range of IP-based surveillance cameras with wired and wireless options, including stand-alone network cameras, pan tilt zoom cameras, dome cameras, box cameras and outdoor cameras. This business gets orders from all relevant sectors like consumer, SMB/SME and enterprise. D-Link also handles cabling requirements of large enterprises and SMEs/SMBs across sectors. In healthcare, the focus is on high data transmission in ICU and operation theatres, while it provides complete platform of infrastructure systems and fibre connectivity for data centres. For enterprises, it offers exhaustive solution for physically distributed network and plan for flexible cabling. D-Link has recently acquired TeamF1 Networks, a provider of embedded software engineering with expertise in networking and security, in a share swap deal of 5.5m shares were issued at a price of Rs. 30 each, resulting in goodwill on acquisition of Rs. 15.35 Crs. TeamF1 provides networking and security solutions for key infrastructure components of communication and industrial equipment's (both wired and wireless). Its products have been planted in embedded systems by scores of OEM customers ranging from big corporates to start-up companies. This acquisition will not only foment D-Link's technological and R&D capabilities but also spur in-house customization and development of new localized products. To strengthen its reach in industrial networking segment, D-Link has recently tied up with MOXA, a well-recognized player in industrial networking, computation and automation and MOXA has presence in over 70 countries. This alliance is aimed towards providing comprehensive industrial networking solution with switching, IP surveillance & wireless products as part of its offering. This association will help D-Link to offer reliable network solution for industrial grade networking technology catering to wide industrial segments like power, factory automation, surveillance projects, oil & gas, marine and telecom carriers. With the rollout of 4G and its enabled products will help D-Link to leverage its position in SOHO/SMB segment. Its latest product line from Connected Home Solution comprises of Wi Fi smart plug, motion sensor, audio extender and apps. It has also unveiled 'D-LINK Connect Mobile App' for its channel partners and retailers across the country. This app provides instant update on new product introductions, details on select SKUs with specification videos, news, events etc. There is a good demand for D-Link's portable routers have got a thrust from widespread adoption of 4G LTE technology in the consumer segment. Some other new products introduced last fiscal include a baby camera and 11AC product line up with cloud services which helps in stream media, share files and control network from any PC or mobile device remotely. Also D-Link Corporation recently signed a non-binding MOU with the Telegana government to set up its global R&D centre, and expands its Hyderabad office and build a network training centre in Indian state of Telegana with an investment of over Rs. 350 Crs. D-Link (India) continues to rely heavily on wares imported from D-Link Corporation and its subsidiaries, associates. To maintain its technological edge D-Link Corporation continues to rack up R&D spending which grew 18 % in the year ending 2014 and constituted 3.7 % of net operating revenues. As a result, it has been awarded copyrights and patents on several technological platforms including application specific integrated circuit (OTC:ASIC) computer chips, hardware technology designs, software applications and other intellectual properties.

    Outlook and Valuation:

    (click to enlarge)

    D-Link (India) Limited is a part of D-Link Corporation and is one of the largest networking company in India. The Company is engaged in Marketing and Distribution of Networking products in India as well as SAARC Countries. D-Link Holding Mauritius Inc., which is 100 % subsidiary of D-Link Corporation, is holding 60.37 % in D-Link (India) Ltd. D-Link (India) Limited is a key market player with a nationwide reach, robust product portfolio and superior services in India. The Company is firmly committed towards delivering high quality, efficiency and reliability to Networking products, solutions and services. Its product portfolio consists of end to end networking products, which includes 3G/4G, broadband, IP surveillance, network security, network storage, switching, routing and wireless LAN. D-Link is a leading player in networking products for the enterprise segment and is well placed to grab emerging opportunities in education, BFSI, manufacturing and customer premise equipment industry. D-Link's entire range of high end copper and fiber products finds applications in high end applications like data centres and server farms. With more and more people availing internet connections, the increase in popularity and usage of mobile devices like laptops, smart-phones and gaming consoles has also resulted in an increased demand for networking products in the consumer space in India. India adds more than 1.5 Cr wireless subscribers every month and is the second-largest market after China for wireless services. The numbers of wireless subscribers has increased from 26 crore at the end of FY08 to 90 crore at the end of FY14 which reflects a CAGR of 23 % while wired broadband penetration has increased from 0.4 crore at the end of FY08 to 1.5 crore at the end of FY14 at a CAGR of 25 %. In addition to these there are currently 4.6 crore users accessing broadband internet through mobile devices i.e. smart-phones and dongles. Robust growth in wireless as well as broadband subscribers is pushing the demand for PCs, tablets, smart phones and consequently for networking, especially, Wi-Fi networks. The emergence of an affluent middle class is triggering the demand for mobile and internet segments. A young and growing population is aiding this trend with their demand for new age technology, especially the demand for smart phones. This trend is expected to continue and will be further fuelled with an increase in 3G/4G subscribers and broadband users, thus, creating further demand for networking products from individual users. Enterprises have been investing towards setting up a strong networking infrastructure that can deliver reliable and efficient end-to-end solutions to aid in their business operations. The roll out of 3G services and the significant government initiatives in aggressively promoting broadband usage in the country are driving the demand of networking products like routers, switches and access points to storage and surveillance products across all verticals. The fast growth in networking infrastructure is evident across a string of verticals such as telecom, retail, aviation, hospitality, government, manufacturing and education which are increasingly deploying sophisticated networking infrastructure. D-Link being a market leader in providing networking and IT products and solutions naturally benefits from any increased spending in networking infrastructure. In India, D-Link has sustained its growth momentum in various categories. In the switches segment, D-Link's market share continues to grow and has reached the leadership position at nearly 37 % in FY14 against the backdrop of a virtually flat market. In the routers segment, D-Link ranked second with a 36.6 % market share in FY15. In network switches it holds market share of 30 % and in the commercial routers, D-Link retained its Numero Uno position with 40 % of the market and commands pricing power, while in the emerging domain of IP surveillance, D-Link was at 4th place in FY15. GOI's landmark initiatives of digitalizing India and erecting dozens of smart cities would further galvanize the IT networking industry. Lifted by firm backing of its parent D-Link Corporation, D-Link (India) would continue to roll out highly sophisticated products in India. GOI's Digital India project envisages creation of high speed internet at gram panchayat level, on demand availability of public services and digital empowerment of citizens. It plans to set up necessary infrastructure for digital identity, financial inclusion and availability of common service centers. GOI has also laid out policy framework for setting up 100 smart cities in next five years. Despite some cooling, its revenues are expected to grow by 24 % to 25 % over the next two years. D-Link has wonderful top line growth; its revenues have grown by 5 times in last five years with average yearly addition of Rs. 134 Crs in last three years. D-Link's Foray in high end enterprise solutions with recent tie ups with MOXA and GajShield could push its margins higher. D-Link's asset light model manifests in its overwhelming asset turnover ratios, its fixed asset and total asset turnover ratios stood at 32 % and 5.3 % last fiscal respectively. Despite awful net margins, its ability to churn out sales on a low base helps push its return on capital ratios in top quartile and its ROE stood at 18.2 % last fiscal. On Financial side, D-Link in Q4 FY15, reported a jump in its Net profit jumps to Rs. 5.30 Cr an increase of 65.91 % against Rs. 3.2 Cr in the corresponding quarter of previous year. The company's net sales registered 29.91 % increase in Q4 FY15 and stood at Rs. 172.89 Cr from Rs. 133.08 Cr over the corresponding quarter of previous year. During the quarter, it reported its operating profit at Rs. 8.87 Cr as against Rs. 5.99 Cr in the corresponding period of the previous year. For the end of FY15, the company registered a growth of 28 % in Net sales to Rs. 625.32 Cr from Rs. 487.58 Cr for the end of FY14. Net Sales and PAT of the company are expected to grow at a CAGR of 24 % and 21 % over 2014 to 2017E respectively. At the current market price of Rs. 162.15, the stock is trading at 22.24 x FY16E and about 17.07 x FY17E. Company can post Earnings per share (NYSEARCA:EPS) of Rs. 7.29 for FY16E and of Rs. 9.49 for FY17E. Despite sobering growth, D-Link's earning is projected to grow by some 26 % (annual average) over the next two years. The company will proficienctly remain virtually debt free - funded the TeamF1's purchase consideration of Rs 16.50 crs through equity. Volatility in forex rates though pose marginal risks for it imports finished goods worth over 50 % of sales. It is expected that the company's surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.






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    As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

    *As the author of this blog I disclose that I do hold DLINK Ltd in my investment portfolios.




    Sep 30 4:30 AM | Link | Comment!

    Price Band: Rs. 240 - Rs. 250.

    Retail Discount : NA .
    Face Value: Rs. 10.00.
    Minimum Lot Size: 60 Shares.
    Issue opens on: 27th July 2015, Monday.

    Issue closes on: 29th July 2015, Wednesday.

    Listing Date on: by 14th August 2015.

    Total No. of Shares offered: 2,20,00,000 shares or 11.00 %.

    Biocon Shareholders Reservation: 20,00,000 shares of total issue.

    Net Public Offer: 2,00,00,000 shares.

    QIB Book: 1,00,00,000 shares or 50 % of issue.
    Anchor Investor Portion: 60,00,000 shares of QIB
    For Mutual Funds Portion: 2,00,000 shares of QIB
    Balance for all QIB including Mutual Funds: 35,00,000 shares of QIB

    Non - Institutional Bidders: 30,00,000 shares or 15 % of issue.

    Retail Book: 70,00,000 shares or 35 % of issue.

    Equity Shares outstanding prior Issue: 20,00,00,000 shares.

    Equity Shares outstanding post Issue: 20,00,00,000 shares.

    Total Size of the Issue: Rs. 528.00 Crs - Rs. 550.00 Cr.

    IPO GRADING: Strong Fundamentals
    FAIR VALUE RANGE - Rs. 320 - Rs. 340.

    KEY FINANCIALS31 Mar 1131 Mar 1231 Mar 1331 Mar 1431 Mar 15
    Total Income(Cr)322.00417.00550.00700.00860.00
    Net Profit (Cr)27.0071.00102.00135.00175.00
    Net Profit Margin8.38 %17.02 %18.54 %19.28 %20.34 %
    EPS (.)1.403.605.106.708.80
    NAV (.)11.0014.8025.9033.0043.70
    Net Worth (₹Cr)220.70296.80518.60659.30844.90
    ROE (%)12.3323.9219.7020.5020.70
    ROCE (%)7.4018.0019.7016.6017.50
    *Thee face value of company was Rs. 5 and then it consolidated its face value to Rs. 10 on March 16, 2015.


    Incorporated in 1993 and headquartered in Bengaluru, Syngene International Limited is a subsidiary of Biocon Limited, a global biopharmaceutical enterprise focused on delivering affordable formulations and compounds. Biocon, owns about 85 % of Syngene, and will reduce its stake to about 74 % through the IPO. Syngene International Ltd is one of the leading Indian-based contract research organizations, offering a suite of integrated, end-to-end discovery and development services for Novel Molecular Entities ("NMEs") across industrial sectors including pharmaceutical, biotechnology, agrochemicals, consumer health, animal health, cosmetic and nutrition companies. Company's service offerings also support the development of biosimilar and generic molecules. In the near term, it intends to forward integrate into commercial-scale manufacturing of NMEs. As an experienced CRO with a proven track record of providing quality NME discovery, development and manufacturing services and continued focus on reliability, responsiveness and protection of client's intellectual property, Syngene is well-positioned to benefit from the expected growth in the CRO industry The company offers services through flexible business models that are customized to their client's requirements. During Fiscal 2015, Syngene serviced 221 clients, ranging from multinational corporations to startups, including 8 of the top 10 global pharmaceutical companies by sales for 2014. It has several long-term relationships and multi-year contracts with their clients, including three long-duration multidisciplinary partnerships, each with a dedicated research centre, with three of the world's leading global healthcare organizations Bristol-Myers Squibb Co. ("BMS"), Abbott Laboratories (Singapore) Pte. Ltd. ("Abbott") and Baxter International Inc. ("Baxter").


    Syngene provides contract drug discovery, research and manufacturing services to 17 of the world's top 20 pharmaceutical companies, including Bristol Myers Squibb & Co and Abbott Laboratories Ltd. Its revenue rose 25 % in the last three years. It manages a pool of 2,122 scientists including 258 PhDs and 1,665 scientists with master's degree, to ensure timely execution of projects, cost effectiveness and quality of the projects, confidentiality and protection of intellectual property. The company owns state-of-the-art research facilities spread over 900000 sq. ft., certified by major regulatory bodies. As an experienced CRO, Syngene is well positioned to capitalize on the advantages of its flexible business models that customizes to their client's requirements globally. There are great opportunities for CROs from the outsourcing markets and thus increasing their share towards global R&D expenditures. The company's increasing clientele, expanding capacities as well as capabilities, along with plans for forward integration into commercial manufacturing will enable the company to drive growth by benefiting from the opportunities in future. Syngene is well poised to cash in on growing global pharma R&D outsourcing trend. Global pharmaceutical players are facing structural issues such as profit pressures arising from impending patent cliff, drying product pipeline and rising R&D costs. Surprisingly, however, the new product approvals from the USFDA are on the rise. Hence to maintain the cost balance at one end and maintain the new product introduction at the other, these players are inclined to outsource some of the R&D budget to CROs like Syngene. The parent Biocon is looking for a demerger may be considered when Biocon is less financially dependent on Syngene.


    The global CRO market for discovery services was estimated at US$14.7 billion in 2014 and is expected to reach US$22.7 billion in 2018, reflecting a CAGR of 11.5 % (2014-18), according to the IQ4I Report. The global CRO market for development services was estimated at US$28.8 billion in 2014 and is expected to reach US$44.6 billion in 2018, reflecting a CAGR (2014- 18) of 11.6 %, according to the Frost & Sullivan Report. Contract research organisations (CROs) offer outsourced services to support discovery and development for R&D driven organisations across industrial sectors like pharmaceuticals, biotechnology, biopharmaceuticals, neutraceuticals, animal health, agro-chemicals, cosmetics and electronics. CRO services span the range of R&D activities from new molecular entity (NME) discovery, development and manufacturing. Growth in the CRO market has historically been driven by growth in R&D spending and increased outsourcing of R&D activities. CROs offer clients an opportunity to manage costs, have flexible operations and realise efficiencies in R&D and related functions. Also, the need for greater flexibility has reduced the willingness of these players to incur large fixed costs associated with large scale R&D programmes. Outsourcing allows clients to convert a portion of their R&D budgets from a fixed to a variable cost, giving them greater flexibility to shift strategic and development priorities in response to market conditions. India has offered a significant cost advantage and skilled personnel. However, as global pharma outsources more R&D functions, outsourcing to India is increasingly seen as a strategic move to garner quality and value, rather than just a tactical decision to lower costs. High recall value Due to its integrated service offerings coupled with consistent performance and high data integrity ethos, Syngene has enjoyed high recall value, which is reflected from the fact that eight out of top 10 clients have been engaged with the company for the past five years. The company has also established dedicated centre for its three major clients Bristol-Myers Squibb Co (NYSE:BMS), Abbott and Baxter. BMS has also recently extended this engagement with Syngene to 2020. Syngene stands to gain from forward integration to become a Contract Manufacturing Organization (NYSE:CMO). Further, Syngene's plan to foray into CMO of novel drugs will add significant upside over the next 3-4 years. Entry into the CMO business will open up the large revenue source (like Divi's) and make Syngene a complete turnkey solution provider amongst the Indian bourses.


    Syngene is likely to incur capex of US $200mn in the next 2-3 years for greenfield as well as brownfield expansion. It currently manufactures small & large molecule to support clinical trials for multiple clients. It has shown healthy financial performance in the last 5 years. During the last 4 years, revenue grew 28 % and shown PAT CAGR of 59 %. During the same period its EBITDA grew by 31 %. In FY15, the company derived 96 % of revenue from the export market. During FY15, revenue grew 23 % YoY, to Rs. 860 crore, 95 % of which came via exports, while EBITDA margin was healthy at 34 %, leading to an EBITDA of Rs. 293 crore, up 32 % YoY. Since the company enjoys many tax concessions in form of SEZ unit and additional depreciation on plant and machinery, income tax rates are very low, and stood at just 14 % for FY15. Thus, net profit of Rs. 175 crore was earned in FY15, translating into net margin and EPS of 20.3 % and Rs. 8.89 respectively. On equity of Rs. 199 crore (face value of Rs. 10 each), company has net worth of Rs. 845 crore, as of 31st March 2015. While it has total debt of Rs. 155 crore, balance sheet shows current investments and cash balance of Rs. 262 crore, indicating net cash surplus of Rs. 107 crore, or Rs. 5.36 per share. At upper band of the IPO, Enterprise value of SYNGENE comes at Rs. 5,048 Cr and at lower band it comes at Rs.4,848 Cr.

    According to me one should look for subscribing for SYNGENE INTERNATIONAL LTD IPO, the company has fixed the price band at Rs. 240-250 per share. Based on FY15 annual EPS of Rs. 8.80, SYGENE is offered at P/E range of 27.27x on price of Rs. 240 and at a PE of 28.40x on price of Rs. 250. This Ipo is fairly valued given its operational scale. Extrapolating FY15's earnings growth rates of 30 % to FY16, company is estimated to clock net profit of Rs. 228 crore for FY16 translating into EPS of Rs. 11.45 , which indicates a PE multiple of 21 times, at upper price band. PE multiple of 22 times, based on current year earnings, is attractive for a high-growth pharma stock clocking healthy margins, with a sound balance sheet, backed by strong management team and pedigree. Since Sun Pharma Advanced Research is loss making and there are no other pure-play CRAMs players listed on Indian bourses, no listed peer is ideal for comparison. Thus, with attractive pricing & strong fundamentals with good institutional holdings the Long term investors should look into subscribing the IPO for good opportunity. Short term investor can subscribe for listing gains.

    As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

    *As the author of this blog I disclose that I do have applied for the IPO.


    Reader Friends, grab a fresh hot cup of coffee, turn on your net & browse on to & take out few minutes to get to know the most interesting world of investment... Till then HAPPY INVESTING, don't forget to Share !!

    *Dear Reader friend, if you enjoyed this article, please do share it with your Friends and Colleagues through Facebook and Twitter, and drop in your valuable thoughts in comment box..




    Jul 27 7:42 AM | Link | Comment!

    Scrip Code: 570001 / TATAMTRDVR

    CMP: Rs. 135.10; Buy at current levels.
    Short term Target: Rs. 151, 6 month Target - Rs. 177;
    STOP LOSS - Rs. 124.30; Market Cap: Rs. 6,510.91 Cr; 52 Week High/Low: Rs. 189.90 / Rs. 79.40

    Total Shares: 48,19,33,115 shares(17.90% of Sh Capital); Promoters : 1,86,00,448 shares -3.86 %; Total Public holding : 46,33,32,667 shares - 96.14 %; Book Value: Rs. 62.74*; Face Value: Rs. 2.00; EPS: Rs. 3.89*; Div: 205 %* ; P/E: 57.71* times; Ind. P/E: 38.45*; EV/EBITDA: 18.27*.

    Total Debt: 2,845.87 Cr; Enterprise Value: Rs. 9,356.77 Cr.

    *Being DVR a class of equity capital, Tata Motors financials are used.

    TATA MOTORS LIMITED: Tata Motors was founded in 1945 and was formerly known as Tata Engineering and Locomotive Company Limited (TELCO) and changed its name to Tata Motors Limited in 2003. The company is leading manufacturer of commercial & passenger vehicles in India and is among the top 3 passenger car manufacturers in India and the world's fourth largest truck manufacturer & world's Second largest bus manufacturer. Through its subsidiaries, the company is engaged in engineering and automotive solutions, construction equipment manufacturing, automotive vehicle components manufacturing and supply chain activities, machine tools & factory automation solutions. The company's Automotive operations include all activities relating to development, design; manufacture, assembly and sale of vehicles including all financing thereof, as well as sale of related parts and accessories. Tata Motors has operations in UK, South Korea, Thailand & Spain. The company has many subsidiaries but the most prominent among these is Jaguar-Land Rover (JLR) (a British car manufacturing company) which it acquired in 2008 at $230 Cr and turned it from a loss making company to a profit making company. JLR contributes 54 % to the company's revenues. The company's product portfolio ranges from the ultra low cost car Nano to the luxurious cars from JLR, from its ground breaking invention of the light commercial vehicle (LCV) the Ace to the international Prima Truck range. TATA MOTORS is compared to Mazda Motor Corporation, Suzuki Motor Corporation and Mitsubishi Corporation.

    Investment Rationale:

    Tata Motors is India's largest automobile company, last quarter JLR reported all-time high monthly volumes with both Land Rover and Jaguar rising 54 % and 9 %, respectively. This was been due to geographical demand fuelled by emerging markets like China, Brazil along with the developed markets of the US. In this fourth quarter, Tata Motors posted 16.7 % YoY growth in revenue in the automotive segment, whereas JLR reported a top-line growth of 65.7 % YoY. This led to an overall 44.3 % YoY growth in the company's consolidated top-line to Rs. 50,900 Cr, EBITDA margin at JLR were at 14.6 %, the consolidated EBITDA margin improved by 30 basis points YoY to 14.1 %. EBITDA grew at Rs. 7,170 Cr. TATA MOTOR was accounted for a tax credit of Rs. 1,820 Cr on account of credit for carry forward of losses from JLR account. Profit After Tax grew by 86.1 % YoY to Rs. 4590 Cr. On Standalone basis, Tata Motors posted 14.4 % YoY growth in its top-line at Rs. 16,390 Cr. Its overall volumes grew by 18.4 % YoY, whereas average realization/vehicle declined by 3.3 % YoY on account inferior product mix skewed towards passenger cars. EBITDA margins on standalone basis improved by 0.60 % YoY to 9.6 % on account of tight control over other expenditure. As a result, EBITDA grew to Rs. 1560 Cr YoY. Profit After Tax on standalone basis grew by 22.8 % YoY at Rs. 780 Cr. The higher than expected standalone profit partially compensated for the disappointment at JLR. JLR reported 51.5 % YoY growth in revenue at ₤414.4 Cr, mainly led by a 48.2 % YoY improvement in volumes. Average realisation/vehicle declined by 2.3 % QoQ on account of inferior product mix skewed towards 'Evoque'. Other expenses increased by ₤9 Cr on account of investment in new capacities. As an result, EBITDA margins declined by 2.40 % QoQ at 14.6 %. JLR PAT stood at ₤42.2 Cr as against ₤44 Cr in Q3FY12. This, in experts view, a big disappointment given that the volumes for the quarter were up by 11 % QoQ and currency impact was minimal. Management expects JLR volumes to be driven by launch of new Evoque in new markets, demand for newly launch Jaguar's Model Year (NYSE:MY) 2012 XF and ramp up operations in China. In Q2 FY12, Evoque was only launch in UK, Europe and US. Evoque has received buoyant response and has an order book of around 20,000 units after catering 8,000 units in Q2 FY12. It is in midst of launching Evoque in China and other developing markets, thus resulting in incremental Evoque volumes in H2 FY12. The company has started to ramp up the distribution network in China to 100 dealers by FY12E and is in advance talks with local partner for production in China. The company has largely resolved issues related to engine constraints with Ford. JLR is setting up a new engine manufacturing facility in UK, which entails an investment of £35.5 Cr. Net Automotive debt to equity stands at 0.3:1. JLR is likely to come up with two new launches i.e. Jaguar XF station wagon in Q3FY13E and new Range Rover platform in Q4FY13E. The company increased its guidance for a capex and R&D spends at JLR to ₤200 Cr as against the earlier guidance of ₤150 Cr. JLR completed an unsecured Revolving Facility totaling ₤71 Cr for 3-5 years thereby strengthening its liquidity position. Management sounded cautiously optimistic regarding volume growth at JLR in Europe and UK.

    Outlook and Valuation:

    The long term investors can buy the TATAMTRDVR in view of attractive valuation. The long term holders of ordinary shares of Tata Motor can switch to TATAMTRDVR. The Tata Motors DVR shares carry 1/10th of voting rights and shareholders are entitled to a 5 % higher dividend than ordinary shares in lieu of surrendering voting rights. Tata Motors DVR trades at a discount of 45.2 %. The average discount for the DVR to Tata Motors ordinary share was 36.7 % since inception. The average discount for the DVR share over the last two years has been 40.5 %. At the Current Market Price of Rs. 135.10, the DVR is trading at a 40 % discount to Tata Motors' ordinary share which is at Rs. 224.55. At the current levels, the probability of the discount narrowing is higher. On Some Of The Parts basis the value of standalone business comes at 9x FY13 adjusted EPS of Rs. 5 to arrive at Rs. 45 and for JLR it comes at 5x EV/EBITDA to arrive at Rs. 183 and the valued of the investment book of the company comes at 0.2x BV for unquoted investments and market value of quoted investments to reach Rs. 9/share and arrived at our target price ofRs. 275. One can BUY TATA MOTOR DVR at all lower levels for better returns. It has outperformed the broader market by 6 % on an annual basis.Globally DVRs trends to trade between 10 % - 15 % discounts to its Equity shares, TTM DVR currently trades at 40 % discount to its Equity shares. One should buy TTM DVR at 40 % - 45 % discount to its EQ SH & Sell when DVR arrives at 10 % - 15 % discount to its EQ SH. TTM DVR can be a good 'BUY' with a target price of Rs.151 for the short term. Expect discount to the Equity shares reduce to at least 30 % over next one year given the attractive valuations and increasing free float. For the shorter term it can be a good BUY, with a price target of Rs. 151.

    SOTP valuation (FY2013E)

    BUSINESS SUBSIDIARYValue per Share(Rs.)
    Core Business (9x FY13E Stand.EPS)45
    JLR (5.0x FY13E EV/EBITDA)183.00
    Tata Daewoo2.00
    Tata Motor Finance3.00
    Tata Technologies4.00
    TML Drivelines4.00
    Value of Other Subsidiaries14.00
    Value Post Discount (20 % Holding discount)11.00
    Value of Investments (0.2 x BV of Investments)9.00


    SALES (Rs. Crs)1,22,127.901,65,654.501,89,786.002,07,532.00
    NET PROFIT (Rs. Crs)9,042.5012,522.4013,811.7014,699.00
    EPS (Rs.)28.4037.5041.1044.10
    PE (x)9.707.306.706.30
    P/BV (x)4.602.802.802.70
    EV/EBITDA (x)6.204.304.203.70
    ROE (%)66.1047.9041.8043.80
    ROCE (%)22.1023.5021.4022.50

    I would buy TATA MOTOR LTD DVR with a price target of Rs. 151 for Medium to Long term and Rs. 177 for the Short term players. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 124.30 on every purchase.


    Disclosure: I am long TTM.

    Jun 03 6:07 AM | Link | Comment!
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