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UBS Investment Research
Tata Motors Ltd.
Q2 FY11 results review
JLR performed better than expectations
Jaguar Land Rover (JLR) sales and margins were higher than expectations with
sales at £2.2bn (+58% YoY, -1% QoQ) and EBITDA margin at 16.6% mainly due
to higher ASPs (+7% QoQ) and lower other expenses. The ASP increase was due
to improvement in product (higher XJ shipments) and regional mix. Adjusted
EBITDA (adjusted for £144m of product development capitalisation) was at 10.2%
(vs. 9.5% in Q1 FY11).
Standalone margin impacted by higher other expenses
Standalone sales were in line at Rs115bn (+10% QoQ, +44% YoY). Net realisation
in Q2 FY11 improved +2% Q0Q and +12% YoY. Standalone margins at 9.7%
were lower than our expectations mainly due to higher other expenses (14.3% of
sales vs. 13.3% in Q1 FY11). Management indicated that margins could increase
going forward on the October price increase and cost reduction initiatives.
We maintain that JLR margins could disappoint due to: 1) unfavourable FX
movement with EUR appreciating and USD depreciating with respect to GBP; 2)
bottoming out of incentives; and 3) potential margin pressure from rising
commodity costs. We expect JLR to contribute 57% and 53% of consolidated
EBITDA in FY11/12, respectively, and hence remain the key driver of stock price
performance.
Valuation: maintain Neutral and price target of Rs1,300
We value the domestic business and subsidiaries at 10x 12-month forward
EBITDA and JLR at 5x 12-month forward EBITDA to derive our price target.
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