>TATA MOTORS (DAIWA)

What has changed?
■ Tata Motors has divested 20% stake in its construction equipment subsidiary Telcon to Hitachi for Rs 11.6bn. Hitachi now has the controlling stake with 60% stake in the business.

Impact
■ We expect the proceeds to be used to repay debt and reduce the leverage on the balance sheet. We estimate automotive debt/equity would reduce to 0.9x by the end of FY12e (from 2.7x currently) if cash proceeds were used to repay debt. Expected cash proceeds are: a) Tata Motors sells 49% stake in Tata Motor finance at Rs 6.4 billion (valued at 1x FY09 P/BV), b) Rs 48 bn of free cash flow generated from domestic business and c) Rs 11.6 bn stake sale in Telcon

■ We have increased our target price to Rs 974 (from Rs 922) as we now value Telcon at a 20% discount to the current deal valuation. Our estimated value for Telcon increases from Rs 6/share to Rs 41/share as we take the current deal as the benchmark for valuations from P/E methodology earlier. Our subsidiary value estimate increases to Rs 117/share from Rs 90/share previously.

■ Our consolidated earnings estimate have been increased by 2.7-3.4% in FY11- FY12e factoring in cash proceeds and increase in minority interest

Valuation
■ The stock currently trades at 8.7x on our FY12e consolidated estimates.

Catalysts and action
■ Develeraging of balance sheet and improvement in Jaguar and Land Rover operations are key catalysts for stock performance.

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