Stock Views on TATA MOTORS, POLARIS, COAL INDIA

RBS on COAL INDIA

RBS has a `Sell' rating on Coal India with a target price of 270. Management cited that shortage of railway rakes was hurting off-take and it was expecting FY11 off-take volumes to be 428 mt. With current inventory already at 57 mt, it expects production volumes to be around 435 mt. Coal India's management highlighted that it is currently facing a severe shortage of railway rakes. The management indicated that they might only be able to achieve offtake of 428 mt for FY11. Consequently, inventories after declining from 63 mt in FY10 to 50 mt by Dec 2010, have now increased to around 57 mt. Due to difficulty of storing coal (risk of catching fire, etc), management does not want to increase inventory much beyond FY10 levels of 63 mt. RBS has forecast a 3.1% CAGR for FY10-15F. RBS does not expect this to play out in the short to medium term. With cash of $10 billion and domestic growth options constrained, management has been having discussions with multiple players for investing in their global coal assets. However, with coal markets volatile, expectation of sellers has also increased. Coal India is also considering the risks involved in overseas asset exposure as compared to the fixed margin it is assured of, if it uses the coal import route.

HSBC on POLARIS

HSBC believes that Polaris is well positioned to benefit from strong IT spending in the BFSI market, due to its modular product portfolio and relationships with large banking clients. Polaris reported strong q-o-q Q3 US dollar revenue growth of 6.6%, including 10.6% for products (23% of total revenue) and 0.6% for IT services. HSBC expects this momentum to continue, as the demand environment remains strong. The company is gaining traction in its IT services and products divisions, and HSBC has ascertained that the pipeline is strong, with some multi-million-dollar product deals nearing closure. HSBC forecasts US dollar revenue growth of 15.5% in FY12 and 16% in FY13, with EBITDA margins of 14% in FY12 and 15% in FY13. Overall, due to a tax rate increase, the net profit is likely to remain flat in FY12, at about 197 crore. The stock is now trading at a PE of 9.7x to FY12E EPS and 7.8x FY13E. HSBC continues to value Polaris at 235 per share.

CLSA on TATA MOTORS

CLSA retains the `Buy' rating on Tata Motors. The highlight of Tata Motors' Q3 results was the Q-o-Q margin improvement in both India and JLR, which drove a 14% Q-o-Q growth in consolidated profits. On the negative side, weakening Jaguar retail sales are a concern and JLR's amortisation of capitalised R&D costs grew faster than expected. In FY12, CLSA expects India business to be under pressure given slowing heavy commercial vehicle growth and weakening car franchise but are more optimistic on JLR given multiple volume and cost triggers. JLR's EBITDA margins improved 80 bps Q-o-Q to 17.4% driven by lower incentives and an improving geographical mix. In India, Tata Motors became the sole auto OEM to register a Q-o-Q improvement in EBITDA margins with margins improving 70 bps Q-o-Q to 10.4% despite high under-utilisation levels of the Nano plant. In cars, the Indica is not selling well and CLSA doubts the sustainability of the recent improvement in Nano sales. However, JLR should have a better year with the launch of the Evoque Land Rover by Q1FY12 and multiple cost-reduction initiatives. At the balance, we have a positive outlook given that JLR now accounts for about 80% of EPS as well as Tata's inexpensive valuations.