Tata Motors-2QFY11: JLR EBITDA Beat : Citi

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Tata Motors (TTM)
2QFY11: JLR EBITDA Beat Offsets Disappointing Parent Results

 2Q parent results disappointed on margins — 2Q EBITDA margins at 9.7% were
down 160bps Q/Q, 50bps below expectations. Slippage attributed to hardening
material costs and SGA ahead of expectations (v. similar to 4QFY10). Mgmt noted
in the con call that margins should improve sequentially as price hikes effected in
Oct positively impact results. EBITDA forecasts unchanged in parent business.


 Balance sheet on the mend, working capital trends stable — Mgmt noted net auto
debt-equity is down to 1.16x post recent QIP – in line with mgmt’s target to reduce
debt /equity to 1:1 levels (from around 2:1 end FY10). Consolidated gross debt
end 2QFY11 was $0.82 billion (flattish over past 6 months). Working capital
trends stable – inventory/receivables at around 33/21 days of sales.

 JLR records a strong beat, mgmt remains optimistic — JLR EBITDA at around $596
million beat our estimates by around $80 million as higher realizations (around
$65,163) more than offset lower Q/Q volumes. Mgmt remains fairly optimistic
given healthy outlook in China, UK, U.S. and Russia. The waiting period on key
models continues between 4-6 weeks in key markets, implying lower incentives.
We revise JLR EBITDA forecasts meaningfully, up by 15%/23% for FY11/12 driven
primarily by better pricing. JLR volume estimates revised by moderate 5-8% over
same period. Consolidated EPADR for FY11/12E/13E is around $3.22/$4.21/$4.61
respectively, up from $2.79/$3.07/$3.04 (EPADR uptick in FY12 also aided by
lower than forecast tax provisioning).