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EARNINGS REVIEW
Tata Motors (TAMO.BO)
Neutral Equity Research
Above expectations – strong JLR performance; Neutral on valuation
What surprised us
Tata Motors reported 3QFY11 consolidated net income of Rs24.6 bn, up 178%
yoy and 17% qoq. After adjusting for higher other income, this was 13% above
our estimates and 9% above Bloomberg consensus. The surprise was mainly
driven by JLR, where net income of Rs19.5 bn was up 14% qoq on: 1) 3.5%
qoq rise in sales volume; 2) 14% qoq rise in revenue per unit (due to
favourable pricing and mix); and 3) 80 bp qoq improvement in EBITDA margin
at 17.4%. India business net income was up 4% yoy in spite of 28% yoy
growth in revenue, driven by 246 bp yoy decline in EBITDA margin.
Management expressed optimism on the demand outlook, and highlighted
the domestic macro environment as the main source of risk.
What to do with the stock
We believe that the earnings upgrade cycle for JLR could continue given
the turnaround in its product portfolio and strong luxury car demand in
regions such as China, US, and Europe. We also believe that EV-based
valuation is more appropriate for this company, given its financial
leverage, and the upgrade cycle looks priced in when evaluated on
parameters such as EV/IC, EV/sales, and EV/EBITDA. The stock is currently
trading at 5.5X FY12E EV/EBITDA vs. 6.7X average for Indian auto
coverage, 3.2X for Europe, and 4.7X globally. Our Neutral rating and 12-
month EV/EBITDA-based TP of Rs1,106 remain unchanged.
Key risks: Upside – higher-than-expected sales volume and margins at
JLR. Downside – lower-than-expected demand in global luxury car market,
weaker margins at JLR, low visibility of detailed financials of JLR which is
the largest driver of valuation for Tata Motors
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Tata Motors (TAMO.BO)
Neutral Equity Research
Above expectations – strong JLR performance; Neutral on valuation
What surprised us
Tata Motors reported 3QFY11 consolidated net income of Rs24.6 bn, up 178%
yoy and 17% qoq. After adjusting for higher other income, this was 13% above
our estimates and 9% above Bloomberg consensus. The surprise was mainly
driven by JLR, where net income of Rs19.5 bn was up 14% qoq on: 1) 3.5%
qoq rise in sales volume; 2) 14% qoq rise in revenue per unit (due to
favourable pricing and mix); and 3) 80 bp qoq improvement in EBITDA margin
at 17.4%. India business net income was up 4% yoy in spite of 28% yoy
growth in revenue, driven by 246 bp yoy decline in EBITDA margin.
Management expressed optimism on the demand outlook, and highlighted
the domestic macro environment as the main source of risk.
What to do with the stock
We believe that the earnings upgrade cycle for JLR could continue given
the turnaround in its product portfolio and strong luxury car demand in
regions such as China, US, and Europe. We also believe that EV-based
valuation is more appropriate for this company, given its financial
leverage, and the upgrade cycle looks priced in when evaluated on
parameters such as EV/IC, EV/sales, and EV/EBITDA. The stock is currently
trading at 5.5X FY12E EV/EBITDA vs. 6.7X average for Indian auto
coverage, 3.2X for Europe, and 4.7X globally. Our Neutral rating and 12-
month EV/EBITDA-based TP of Rs1,106 remain unchanged.
Key risks: Upside – higher-than-expected sales volume and margins at
JLR. Downside – lower-than-expected demand in global luxury car market,
weaker margins at JLR, low visibility of detailed financials of JLR which is
the largest driver of valuation for Tata Motors
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