Microsec Capital has recommended 'Buy' on Tata Motors with target price of Rs 543 as against current market price of Rs 389 in its report.
Commenting on the investment rationale, the stock broker said, ''We initiate coverage on Tata Motors (Tata) with a 'Strong Buy' rating. Our rating underpins the company's distribution network, after sales service, usage of product in different sectors and its R&D and technological framework. However, slowdown in automobile industry impedes our optimism bit.
We adopted a comparable valuation method to value Tata Motors based on Price-to-Earnings (P/E) multiples. Historically, the company traded on a five year average P/E multiple of 10.87x. This reveals a premium to the peer group average P/E of 10.54x for the same period.
We expect the company to trade in line with the peer group average P/E. As a result, to arrive at a target P/E multiple for Tata Motors, we applied a 20% discount for FY15, to five year average P/E of peer group. This resulted in a targeted P/E multiple of 8.43x for the company, on FY2015E EPS of RS 64.4, reflecting a target price of INR543, inclusive of dividend payments, for the stock. Our target price translates a 40% upside over Tata Motors's current stock price.''
