Tata Motors- JLR results continue to surprise: RBS

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Tata Motors
JLR results continue to surprise
At Rs20.96bn, consolidated PAT was 32% higher than our forecast, as JLR's
EBITDA margin and realisations scaled new heights. Despite concerns of
weakening sales volume, profitability raises our EPS forecasts by 12-14%. Buy
with a new TP of Rs1460.4, as new product plans improve growth visibility.





2QFY11 results: JLR scales new peak in EBITDA margin
Tata Motors’ consolidated entity’s normalised PAT rose 3.2% qoq to Rs20.96bn on 6.4% qoq
growth in net sales to Rs287.8bn. The results were 32% higher than our PAT forecast and
17% higher on EBITDA, entirely driven by JLR, where PAT, at £229m, was 58% higher than
our forecast. JLR’s EBITDA margin scaled a new peak of 16.6% due to higher sales
realisation and lower manufacturing expenses. However, at Rs4.3bn, the standalone entity’s
PAT was 6% below our forecast as the EBITDA margin dropped 160bp qoq to 9.7%.

New product plan looks promising to us; we raise our EPS forecasts by 12-14%
The sustained improvement in JLR’s profitability overcoming the adversity of currency and
marginally lower volume is impressive. The new Range Rover Evoque is scheduled to be
launched in the summer of CY11 to meet new emission norms. This improves new-product
launch visibility, thus raising our JLR normalised PAT forecast by 16-18% for FY11-12. For
the stand-alone entity, we maintain our PAT forecast, as we believe the recent aggressive 3-
5% price hike in M&HCV should help overcome recent margin pressure, leading to a 12-14%
increase in our forecasts for consolidated EPS for FY11-12.

We raise our SOTP-based target price to Rs1460.4 and reiterate Buy
For the stand-alone entity, rolling forward the three-stage DCF leads to a marginal
improvement in its value to Rs910 (Rs886 previously). For JLR, we incorporate a revised
EV/EBITDA automotive division multiple of 3.3x CY11F (3.05 previously). For other
subsidiaries, we update for peers at recent market prices, raising the total subsidiary value to
Rs550.4 (from Rs446.5 previously). We reiterate Buy, with an SOTP-based target price of
Rs1460.4, trading at 6x consolidated EV/EBITDA FY12F, and a comfortable automotive net
debt:equity ratio of 1.16 as of 30 October. New product initiatives in the India automotive
space and JLR are key drivers to enable Tata Motors to gain volume traction and build global
scale, whereas a higher capex requirement could be a key risk.