Author: CP

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.

Citigroup Research has downgraded Central Bank of India [CBI] and set a target price of Rs 130. It has initiated coverage with a SELL rating on the stock.

The Citi report says that the banking industry is well poised to grow in India. However, it is skeptical about CBI’s performance. Central Bank appears well positioned to capitalize on this growth through its strong pan-India distribution, above-industry deposit franchise and large corporate lending portfolio. Citi estimates pre-provision profits, earnings and loan growth of 16%, 13% and 18% over FY07-10E. This is well below the PSU Banking industry expectation of 20%.

Expect profitability to remain structurally challenged amid competitive margins, low fees and higher NPLs and delinquencies relative to peers. Though management has taken corrective steps, we see only a gradual recovery.

Central Bank is valued at Rs130 per share based on EVA model, which better captures the long-term value of the business and is a standard valuation measure for Indian banking coverage. At a price-to-book (P/BV) of 1.2x FY09E, which is at a slight discount to target multiples for peer government banks, a value of Rs127 per share of Central Bank is arrived at.

We reported that Lupin has acquired Rubamin Pharma.[RLL]

RLL is a research driven organization with 145 employees, of which 30% are involved in R&D. The company’s R&D capabilities encompass activities such as Product Development and Optimization, and NCE Development Support. This acquisition would provide Lupin access to RLL’s customer base of innovator and generic companies in the US and Europe and various technology platforms, which Lupin does not have. We believe that Lupin would be able to use this customer base, and technology platforms to leverage its own CRAMS initiatives. Lupin will also fill gaps, which RLL has in terms of scale-up and forward integration. Apart from this, we expect Lupin to initiate operational restructuring to reduce cost and improve profitability.

Currently, RLL has sales less than Rs500 mn and EBITDA margin lower than Lupin’s margin. However, ASK India expects sales of RLL to grow to Rs2.5- 3 bn in three years and significantly improve profitability. ASK maintains a BUY on Lupin with a price target of Rs 807. Fully diluted EPS expected for FY08 and FY09 are – Rs 36.9 and Rs 44.8.