Stock Recommendations:: Mold-Tek, Tata Motors

Mold-Tek Technologies
Recommendation: Buy
Price target: Rs169
Current market price: Rs71

Price target revised to Rs169

Result highlights

• Mold-Tek Technologies Ltd's (MTTL) Q4FY2008 results were in line with our expectations. The net sales increased by 15.3% year on year (yoy) to Rs26.0 crore. The KPO division contributed 15.5% to the overall revenue during the quarter. The gross revenue from the plastics division increased by 16.9% yoy to Rs23.2 crore, while the sales from the KPO division increased by 16.8% yoy to Rs4.3 crore.
• The operating profit margin (OPM) rose to 14.2% in the quarter from 13.5% during the same quarter last year on account of improved profitability of the plastics division. Consequently, the operating profit grew by 21.6% to Rs3.7 crore. The segmental profit before interest and tax (PBIT) for the plastics division increased by 60.9% to Rs1.0 crore with the margin expanding by 120 basis points to 4.4%. The PBIT for the KPO division increased by 15.1% to Rs1.9 crore.
• The interest costs increased by 37% to Rs63 lakh, while the depreciation increased by 55.8% to Rs81 lakh. Higher other income resulted in a 22.9% increase in the profit before tax (PBT) to Rs2.6 crore. There was no provision for tax during the quarter.
• During the quarter, the company suffered notional loss of Rs5.3 crore as on March 31, 2008 from the forex derivatives positions. Though the losses are measured on a marked-to-market basis, these losses overhung on the stock resulting in the steep correction.
• Major rework of earlier assignments during the quarter would shift the company's focus more on improving the quality of work resulting into lower growth than our earlier estimates. We are downgrading our earnings estimates from Rs18.7 to Rs14.7 for FY2009 and from Rs25.4 to Rs19.2 for FY2010. Currently the stock is trading at 4.8x FY2009E earnings. We maintain our Buy recommendation with revised price target of Rs169.

Tata Motors
Recommendation: Hold
Price target: Rs680
Current market price: Rs532

Price target revised to Rs680

Result highlights

• Tata Motors' sales for Q4FY2008 were in line with our expectations at Rs8,750 crore, which represents a 5.8% growth. The increase in costs adversely affected the margins on a year-on-year (y-o-y) basis, which are down by 300 basis points to 8.7%. The operating profit declined by 21% to Rs763 crore.
• A higher other income led to a 3% drop in the adjusted net profits to Rs560.3 crore.
• For FY2008, the net revenues grew by 4.6% to Rs28,730 crore led by a 3.6% realisation growth, while the reported profit after tax (PAT) grew by 6% to Rs2,028.9 crore. On a consolidated basis, the net sales grew by 10.2% to Rs35,651.5 crore and the adjusted net profit declined by 2% to Rs2,097.1 crore.
• In order to fund its Jaguar Land Rover (JLR) acquisition, the company is looking to raise Rs7,200 crore through three simultaneous but unlinked rights issues. In addition, it proposes to raise about $500/$600 million through an appropriate issue of securities in the foreign markets on terms to be decided at the time of issuance.
• The outlook for the commercial vehicle (CV) industry appears to be weak for FY2009 onwards in view of the tight financing situation and higher fuel prices. In the passenger vehicle (PV) segment, quite a few launches are slated, but most of them with be in the second half of FY2009, the full impact of which would get reflected in FY2010 only.
• We downgrade our PAT estimates for FY2009 by 2% and introduce estimates for FY2010. We have not factored in the equity dilution as well as the revenue impact of JLR acquisition in view of the incomplete details of JLR. At the current levels, the stock trades at 7.8x its FY2010E consolidated earnings and is available at an enterprise value (EV)/earnings before interest, depreciation, tax, and amortisation (EBIDTA) of 3.8x. In view of the much higher than expected equity dilution to fund the JLR acquisition, muted business outlook, we maintain Hold on the stock with a revised price target of Rs680.