Tata Motors

CMP- Rs.468
Date- March 10th, 2005
Sector- Automobile
52 Week H/L- Rs.574/358
Market Cap- Rs.17,009.3 Crs

1) Tata Motors is the world's fifth largest medium and heavy commercial vehicle manufacturer, produces more than 150 commercial vehicles with a range of light, medium to heavy-duty trucks, bus and tractor-trailers. The company improved its market shares in both commercial vehicles & passenger vehicles and achieved significant growth in exports during Dec’04 quarter.

2) However on operating front, operating margins continue to remain under pressure at 13.3% in the quarter ended Dec. 2004 as against 14.3% in Dec.2003.

3) At current levels company is trading at valuations which are at par with its peers in industry, hence, any fresh addition of this stock should be avoided.

Developments and Impact

Tata Motors to acquire a 21 percent stake in Spanish bus manufacturing company Hispano Carrocera S.A. (HC) for Rs 70 crore with an option to buy over the company completely in the future. The total deal consists of equity, debt and technology licensing. The alliance with Hispano Carrocera will give Tata Motors an access to its design and technological capabilities to fully tap the growing potential of this segment in India and other export markets. Besides, it will help Tata Motors provide a foothold in developed European markets. Hispano Carrocera has a market share of 25 percent in the bus market in Spain. It has its own in-house product development facility for buses and coaches. The acquisition by Tata Motors is yet another sign of the company’s overseas push.

Financials

Earnings of Tata Motors grew by 37 per cent during Q3 FY05 to Rs 8.74 per share against Rs 6.38 per share in the same period a year ago. The growth in earning gains more significance as the same has been achieved when the company as well as the industry has been facing problems of increased Raw Material cost.

Valuations

At the current market price of Rs 462, Tata Motors is quoting at a Price to Earnings ratio of 14.48 x to its TTM ended Dec’04 earnings.

Cheers,
nkpanjiyar

Tata Motors could be forming a Descending Triangle Pattern (see attached chart).

What is a Descending Triangle?

The descending triangle is a bearish formation that usually forms during a downtrend as a continuation pattern or as reversal patterns at the end of an uptrend. Regardless of where they form, descending triangles are bearish patterns that indicate distribution.

A descending triangle, features two converging trendlines. In this "flat-bottom" triangle, the bottom trendline is horizontal and the top trendline slopes downward. The pattern illustrates lows occurring at a constant price level, with highs moving constantly lower.

Because of its shape, the pattern can also be referred to as a right-angle triangle. Two or more comparable lows form a horizontal line at the bottom. Two or more declining peaks form a descending trendline above that converges with the horizontal line as it descends.

If both lines were extended right, the descending trendline could act as the hypotenuse of a right triangle. If a perpendicular line were drawn extending up from the left end of the horizontal line, a right triangle would form. Let's examine each individual part of the pattern and then look at an example.

Trend: In order to qualify as a continuation pattern, an established trend should exist. However, because the descending triangle is definitely a bearish pattern, the length and duration of the current trend is not as important. The robustness of the formation is paramount.

Lower Horizontal Line: At least 2 reaction lows are required to form the lower horizontal line. The lows do not have to be exact, but should be within reasonable proximity of each other. There should be some distance separating the lows and a reaction high between them.

Upper Descending Trendline: At least two reaction highs are required to form the upper descending trendline. These reaction highs should be successively lower and there should be some distance between the highs. If a more recent reaction high is equal to or greater than the previous reaction high, then the descending triangle is not valid.

Duration: The length of the pattern can range from a few weeks to many months, with the average pattern lasting from 1-3 months.

Volume: As the pattern develops, volume usually contracts. When the downside break occurs, there would ideally be an expansion of volume for confirmation. While volume confirmation is preferred, it is not always necessary.

Return to breakout: A basic tenet of technical analysis is that broken support turns into resistance and visa versa. When the horizontal support line of the descending triangle is broken, it turns into resistance. Sometimes there will be a return to this newfound resistance level before the down move begins in earnest.

Target: Once the breakout has occurred, the price projection is found by measuring the widest distance of the pattern and subtracting it from the resistance breakout.

Attached Images

tatamotors20050315.gif (8.1 KB, 77 views)

__________________
Best Wishes!

Traderji

www.Traderji.com

Excellent analysis Traderji!

Your posts are very enlightning and I always look forward to them. Although I understand your time constraints and you running this forum for FREE (very noble indeed), I have a suggesstion to make. I do not know how the other members of this forum may react to this suggestions but I feel one should have an open discussion andthen come to a conclusion based on the majority.

I would suggest you to create a new forum where you post your views/comments on technical analysis and stock picks and then allow access only to those members who may be willing to pay of this service.

You could charge a nominal fee of Rs. 500.00 a month and those who may be interested could then join up.

I would request the other members of this forum to comment on this!

trader ji
Can you please tell us what type of shape MRPL is creating?

Great Call on Tata Motors.

Considering the height of the triangle to be 50.00, are we then to look out for 400.00 levels in Tata Motors??

Traderji,

Great call on TELCO......Thanx!

Yes a good call on TELCO.