Tata Motors- JLR ride continues; Raise PO: BofA ML

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Tata Motors
JLR ride continues; Raise PO
􀂄 Raise forecasts and PO
Q2 recurring profit at Rs 20.94bn was ahead of our above consensus expectation
of Rs 20.1bn due to JLR (Rs 16.5bn vs est Rs 12.2bn) even as standalone
operations disappointed on cost pressures. We raise consolidated EPS forecasts
by 12%-16% over FY11-12E on revised margin assumptions of constituent
businesses, and our PO by 16% to Rs 1,400 driven by (1) upward revision to
forecasts, and (2) expected re-rating of JLR, still in line with global peers.



JLR delivers significant surprise, raise estimates
Net profit at GBP229mn was 35% ahead of est, due to better realisations (up 7%
qoq) leading to stronger EBITDA margins (up 110bps qoq at 16.6%). We expect
margins to hold up above 15%, thanks to improving mix (premium products like
Jaguar XJ, shift to China/U.K), and thereby partially offset impact of higher input
cost and adverse exchange rate. We raise profit forecasts by 32%-35% over
FY11-12E, with volume assumptions of 240K and 260K respectively.

Standalone margins dragged down by costs
EBITDA margins at 9.7% (down 160bps qoq, 370bps yoy) were impacted by
(1) higher input costs, and (2) increase in marketing expenses, related to Nano
and other cars. While cost pressures are unlikely to ease due to new emission
norms, we expect partial mitigation through price hikes and better sales mix i.e.
ramp up of light vehicles production at Hardwar. We cut margins and therefore
profit forecasts by 18%-13% over FY11-12E.