TTM

Today I bought some TTM and added more across all of my accounts. Here are my views:

I have been looking at Tata Motors for a while but want to find a "safer" entry and I believed $8.30 is good enough. $7.90 has been support, so if it falls through, I may get burned; however, I like this play for the long-term for several reasons:

• This year should mark a trough in sales; therefore, the probability for operational rebound is very good. Thus sales and EBITDA estimates should increase significantly for 2010 and 2011.
• Market share gains should occur in most of their busines segments, with the acquistion in Land Rover and Jaguar. The truck/bus segment should benefit the best, while the utilties segments seemed to be having difficultly, due to increased competition.
• The truck business should do very well because of the high barriers to entry in the business segment and through the scale and distribution of the segment.
• The bus segment is very niche and focuses on unique segments like school buses and ambulances. According to the firm, they have bagged about 60% of orders in this segment and should easily grow double digit in 2010 and 2011 from the execution of these strong order flows.
• The Jaguar and Land Rover acquisition is very unique in my eyes. According to management, Jaguar seems to be doing better; however, in my view Land Rover seems to be more of a truck and could add benefit to their truck segment. Regardless, export sales should be bottoming this year and the firm should do well in markets were Tata is already present.
• Tata is operating with a better cost structure - mainly due to the cheaper aluminum and steel commodity prices. In addition, management has reduce labor workforces, as well as overhead for many plants.
• The financial health of the firm seems to be doing well, with regards of the Jag/Land Rover acquistion. The deal was about $3B in US dollars and was through a bridge loan. Looking through the numbers, they sold off various operations at about $1.6B, issued about $850m in 7-year non convert. debentures at a 2% rate. The rest was rolled over for another 18 months on the bridge loan but at 6%. My guess is that they will pay this off through stronger cash flow (given my assumption of a rebound) or perhaps a portion made through an equity offering. This will also improve liquidity ratios and make the firm's debt load seem very much improved (especially come 2011).

Given the complicity of the firm, there are several ways to value it but I think it's worth:

Low case $10, Mid case $14, Best case $18

I'm long roughly 4,000 across the board - so we will see.