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Tata Motors
Another Strong Quarter,
Remain OW
What's Changed
Price Target Rs1,184.00 to Rs1,438.00
F2Q11 results: JLR shines, India disappoints: Tata
Motors reported another strong quarter with adjusted net
income of Rs21 bn, 20% ahead of our estimate. The
India business income was 14% below expectations but
was more than offset by strong numbers at JLR. We
remain Overweight and raise our F2011–12e earnings
by 12/10%, and roll over our price target to F2012. At 9x
F2012e earnings, valuation looks attractive compared
with its global peers.
JLR posts another strong quarter: Though JLR
volumes were disappointing, down 7% QoQ, an
improving product mix (XJ), better regional mix (lower
sales to Europe), lower incentives (down 22/25% QoQ in
US), and partially hedged FX allowed JLR to retain
currency gains from F1Q. EBITDA margins came at
16.6%, up 110bps QoQ. JLR’s net income was Gbp238
mn and post capex/R&D, generated cash of Gbp268mn.
India business disappoints: Revenue, EBITDA and
adjusted net income rose 44%, 5% and 15% YoY,
respectively. ASP was up 1% sequentially, but EBITDA
margin came in at 9.7%, down 160 bps. Net income of
Rs4.3 bn, was 14% below our estimate. The India
EBITDA margin compressed as staff costs rose
(Sanand facility set-up) and pricing pressures increased.
the CV cycle is already priced in. Given the recent
run-up and no near- term catalyst, we think that the
stock could be range bound in the coming month.
However, the positive surprise on JLR margins and their
sustainability going forward should drive the stock
higher from current levels, in our view. We expect
volume growth at JLR, as issues on the engine side get
resolved in early 2011, to be the next driver for the stock.
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