Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Motors Ltd. |
JLR margins are sustainable, Raise TP to Rs1,550 |
BUY
CMP: Rs1,271 Target Price: Rs1,550
n Conso performance above est. due to stellar performance by JLR (margins at 15.6%). However, standalone business disappoints significantly with margins at 9.5% (est. of 10.8%)
n JLR margins are sustainable at high level (around 14%) given the strong demand in most of the geographies, ample scope of cost reduction and higher share of new model launch
n Upgrade FY11E/FY12E EPS by 39%/22% to Rs 141.1/168.3 due to margin upgrade in JLR. Upgrade rating to BUY from ACUUMULATE
n Adverse currency swings is the biggest risk to JLR margins. Capex/R&D at ~10% of JLR FY11 sales continues to affect FCF generation
JLR – ASP rises by 6.6% QoQ driven by improved product & market mix
Retails sales at 56,420 units were in marginally above wholesales billings of 55,13 4
units due to production constraint (engines). The shift in market mix has been favorable
for the company with steady rise in share of UK, China, Russia and ROW. Also, higher
sales of 2010 models helped the expansion in average realizations. Avg. realizations
stood at GBP 40,758 improving 6.6% sequentially.
Consolidated Net Sales – strong topline across businesses
Net sales at Rs 287.8bn was above est. of Rs 281.7bn driven by a strong topline growth in
JLR and standalone business. Standalone topline stood at Rs 115.0bn inline with our
estimate. JLR topline at GBP 2.2bn was 8.2% above est.
Consolidated EBIDTA – JLR reports 15.6% margins
Consolidated EBITA at Rs 40.0bn was above our est. of Rs 35.4bn driven by a stellar
performance by JLR. JLR reported EBIDTA of GBP 351mn (est. GBP 241mn). Margins for
JLR surprised positively at 15.6 against est. of 11.6%. The key drivers for the surprise were
higher ASP as well as lower other expenses. However, EBIDTA for standalone business at
Rs 11bn (est of Rs 12.4bn) and EBIDTA margins 9.5% (est. 10.8%) disappointed
significantly. Margin in standalone business came under pressure on account of higher other
expenses (other expenses to sales was 16.1% vis-à-vis est. of 14.8%).Other key subsidiaries
also reported strong performance.
Consolidated profits – driven by strong operating performance
Strong operating performance filtered down at net profit level. APAT stood at Rs 21.0bn
against est. of Rs 17.8mn. Standalone net profit at Rs 4.3bn was below our est. of Rs 5.3bn
Valuations and View
At CMP of Rs 1,271, the stock trades at PER of 9.0 and 7.6 and EV/EBIDTA of 6.1 and 5.3
our FY11 and FY12 estimates respectively. We have upgraded our FY11E and FY12E EPS
by 39% and 22% to Rs 141.1 and Rs 168.3 respectively. The revision in estimates is due to
margin upgrades in JLR. We believe that current margins are sustainable (with a marginal
downward bias) given the strong demand outlook for most of the regions, ample scope for
cost reduction and higher sale of 2010 models. We believe adverse currency swings as the
only risk to our estimates. We upgrade our rating on the stock to BUY from ACCUMULATE
with a target price of Rs.1,550 (up 25%)
Key Con Call Extracts
¾ Demand outlook is strong for UK, China and ROW. US is witnessing a stable demand
where as Europe is facing some weakness. Russia is fast catching up.
¾ Debt equity stood at 1.73x as on Q2FY11. Post QIP debt equity stands at 1.16x, with
net debt of ~Rs 200bn. Net debt at JLR stand at GBP 800mn
¾ Capex during the quarter – Conso – Rs 44bbn, Standalone – Rs 12bn and JLR – GBP
400mn
¾ Expect capex plus product development to tune of GBP 800mn-GBP 1000mn in JLR
over next 2-3 years per year.
¾ Average realizations benefited from higher sales of XJ (launched in May’10). XJ sales
were ~5000 units Q2FY11 against ~ 2500 units in Q1FY11
¾ Peak manufacturing capacity for JLR is ~300,000 units for whole year. Current
production run rate stand at 20,000 units per month. Currently JLR is operating a peak
manned capacity. Additional capacity can be added with increase in manpower
¾ Supply constraints with respect to engines from Ford is resulting in demand outstripping
supply as reflected in higher retail sales vis-a- vis wholesale billings.
¾ Company is looking at opportunities in China for setting up production capacities. Also,
India is being looked at for setting up a assembly unit
¾ Waiting period for JLR products would be anywhere between 4-6 weeks in different
markets
¾ 40-50% sales of JLR are denominated in USD, 20% in Euro and balance in GBP. On
import side 30-35%(% of sales) is in Euro
¾ Company has taken some hedges in Q1 for Q2. Company as a policy prefers to hedge
its position for a period of upto 1 year. Management did not disclose the current hedged
position
¾ Warranty stands at 4-5% of sale for JLR. It is expected to come down given the focus on
improving quality and higher sales of new products
¾ Expects tax rate for Standalone business in range of 20-25%
¾ For JLR business, tax is looked separately for UK profits and other respective
geographies. For geographies other than UK, average tax would be GBP 30-40mn per
annum. However, for UK operations company has a tax shield of about GBP 2-2.5bn
¾ Product development expenses capitalized during the quarter at JLR ~ GBP 144mn, for
1H, the amount is GBP 278mn
¾ RM cost pressures are lower at JLR than standalone business as the share of raw
material is lowr than the car business in India.
¾ Took price hike from 1st October to extent of 0.5-3.5% fin CV’s and Rs 9,000 for Nano in
Nov’10.
No comments:
Post a Comment