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Tata Motors
Strong margin expansion surprises
3QFY11 results surprise us and consensus by wide margin driven by qoq margin
expansion at parent and JLR level. The historic high margins at JLR to 17.4% on
back of product mix improvement and domestic business overcoming emission
upgrade cost for trucks is encouraging. Buy, for earnings upgrade ahead.
Consolidated results surprise by 11% on EBITDA
! Net sales Rs.316.9bn, +21.7% yoy, 10% qoq. RBS est Rs.298.2bn
! EBITDA margin 15.2%, +350bps yoy, +70bps qoq. RBS est 14.6%.
! Interest expenses dip 6% qoq and 8.5% yoy due to equity fund raising.
! Normalised PAT Rs.24.6bn, +178% yoy, +17.3% qoq. RBS est Rs.20.6, Bloomberg
Rs.21.6bn.
! Adjusted for Rs.326.9mn forex loss. Reported PAT is Rs.24.2bn.
! Consolidate automobile business net debt to equity dips to 0.8.
Parent surprises by huge 30% on EBIDTA, as margins expand qoq
! Net sales Rs.115.2bn, +28.3% yoy, flat qoq. Rbs est Rs.106.1bn
! EBITDA margin 10.4%, +70 bps qoq. RBS est 8.8%.
! Raw material cost to net sales down 100bps qoq to 70%.
! EBITDA Rs.12.01bn, +4.3% yoy, +7.5% qoq. RBS est Rs.9.3bn.
! Normalised PAT Rs.4.3bn. +5% yoy, +4% qoq.
JLR margins scale new peak of 17.4%, +80bps qoq
! Net sales £2.66bn, +18.4% qoq. RBS est £2.53bn
! EBITDA £463mn, +24.3%. RBS est £430mn
! PAT £275mn, + 20.6% qoq. RBS est £249mn
Tata Motors
Enjoying the luxury ride
The 3Q result surprised by a wide margin at both the parent and JLR, driven by
sharp EBITDA margin expansion and better sales realisation per vehicle. Despite
growing market caution about domestic CV demand growth and JLR margins, we
upgrade EPS. The sharp reduction in consolidated net debt has impressed us.
Profitability continues to be a major surprise
Tata Motorís 3Q results surprised us and Bloomberg consensus by a wide margin as the
company recorded Rs24.2bn normalised PAT, driven by sharp qoq per-vehicle realisation
growth and EBITDA margin expansion in both JLR and parent operations. Parent EBITDA
margins expanded by 70bps qoq as the 8% qoq growth in net sales realisation per vehicle
helped overcome emission upgrade costs in commercial vehicles. JLR margins hit new
peaks of 17.4%, an 80bps improvement qoq. Consolidated net debt fell 22% qoq to
Rs214bn.
JLR drives EPS upgrade
We maintain parent profit forecasts despite the impressive 3Q performance, as we trim our
Nano sales volume estimate, but this is offset by our upgrade in commercial vehicle business
profitability post the October 2010 emission upgrade. For JLR, we upgrade PAT by 23-26%,
driven by the improved sales realisation and margins seen in the results. However, for FY12-
13F, we set our JLR EBITDA margin at 16.4%, lower than the 3Q peak. We upgrade
consolidated PAT by 16-18%, supported by lower interest costs on sharp debt reductions.
Luxury ride at attractive valuation, Buy
JLR sales volumes continue to surprise on a monthly trend, which we feel is sustainable on
new Land Rover product launches and China demand. In the Indian market, even though
truck operator profitability remains surprisingly healthy, we limit our short-term commercial
vehicle volume growth forecast to 9.7% in FY12. We trim our parent DCF valuation 7% to
Rs844 as we build in a higher risk-free rate. Meanwhile, our higher profitability forecast for
JLR is eaten into by lower peer-based valuations for other subsidiaries. In all, we increase
our SOTP-based TP slightly, to Rs1,498.9, at which the stock would trade at consolidated
valuation of 8.7x PE and 5.6x EV/EBITDA for FY12F with 20.8% EPS CAGR for FY11-13F.
Premium profits from luxury brand
A qoq surge in profit at the parent and JLR, despite component shortages, beat our
estimates and those of consensus by a wide margin. We upgrade consolidated PAT for
FY11-12 by 16-18% despite increasing caution on the domestic demand outlook. Buy.
Consolidated results surprise by 11% on EBITDA
! Net sales Rs316.9bn, +21.7% yoy, 10% qoq. RBS est Rs298.2bn
! EBITDA margin 15.2%, +350bps yoy, +70bps qoq. RBS est 14.6%.
! Interest expenses dip 6% qoq and 8.5% yoy, due to equity fund raising.
! Normalised PAT Rs24.6bn, +178% yoy, +17.3% qoq. RBS est Rs20.6, Bloomberg Rs21.6bn.
! Adjusted for Rs326.9mn forex loss. Reported PAT is Rs24.2bn.
! Consolidate automobile business net debt to equity dips to 0.8.
Parent surprises by 30% on EBITDA, as margins expand qoq
! Net sales Rs115.2bn, +28.3% yoy, flat qoq. Rbs est Rs106.1bn
! EBITDA margin 10.4%, +70 bps qoq. RBS est 8.8%.
! Raw material cost to net sales down 100bps qoq to 70%.
! EBITDA Rs12.01bn, +4.3% yoy, +7.5% qoq. RBS est Rs9.3bn.
! Normalised PAT Rs4.3bn. +5% yoy, +4% qoq.
JLR margins hit new peak of 17.4%, +80bps qoq
! Net sales £2.66bn, +18.4% qoq. RBS est £2.53bn
! EBITDA £463m, +24.3%. RBS est £430m
! PAT £275m, + 20.6% qoq. RBS est £249m
Management conference call highlights
Consolidated
! Consolidated automotive net debt to equity ratio was 0.8:1 as at the end of the quarter.
! Consolidated net debt was Rs214bn (from Rs275bn in 2QFY11), while the automotive debt
was Rs150bn (from Rs242bn in 2QFY11).
JLR
! JLR to introduce the new Range Rover model, Evoque, by mid-CY11.
! China is the top geography in terms of profitability, but is not the largest profit contributor for
JLR in terms of absolute amount.
! During the quarter, total R&D expenses at JLR were £172m, of which £116m was capitalised.
! Management has said it expects total R&D expenses at JLR to be 10-11% of net sales going
forward, which is in line with our expectations and peerís expenditures on R&D. On absolute
basis, management expects total JLR R&D expenses of £0.8bn-£1.0bn.
! Currently, around 20% of the total raw material requirement is sourced from low-cost
countries.
! Management said that raw material price negotiations may result in raw material cost
increases from next financial year.
! According to management, the tax shield available for JLR is expected to continue for the next
three to four years given the current trends.
! According to management, JLR hedges a percentage of its net foreign exchange exposure for
next 12-15 months. It further said that the percentage varies according to the business
requirement.
Standalone
! The current Nano production rate is about 10,000 vehicles per month and management
expects it to increase to about 15,000/month by March 2011 end.
! According to management, the Nano wholesale sales volume is also at about 10,000/month
currently.
! The company has taken a price increase of 1-1.5% across the product range in January 2011.
! Management said that the increase in steel and tyre prices could impact margins going
forward.
! The standalone annual capex requirement could be Rs25bn-30bn for the next two to three
years, according to management.
Raising EPS forecasts post impressive results
We are raising our consolidated EPS forecasts by 18% for FY11 and by 16% for FY12, driven
entirely by the upgrade to our JLR forecasts. Following are the main reasons for the upgrade:
! Incorporation of robust 3QFY11 performance;
! Historically high margins at JLR, which management expects to be supported by the good
response during the displays of the upcoming Range Rover Evoque;
! Changes in our forex rate assumption, which are favourable for JLR profitability.
At standalone level, we have downgraded our volume forecasts mainly for Nano, however, the
impact on profit is fully offset by our higher volume estimates for (more profitable) commercial
vehicles.
Valuation attractive, Buy maintained with new target price of Rs1,498.9
Increase in risk free rate to 8.2% trim parent value by 7%, whereas EPS is maintained.
JLR value per share increased sharply on a PAT upgrade of 25% and rise in peer set BMW
valuation. Other subsidiary values have dipped their Indian peer valuations have fallen.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
Tata Motors
Strong margin expansion surprises
3QFY11 results surprise us and consensus by wide margin driven by qoq margin
expansion at parent and JLR level. The historic high margins at JLR to 17.4% on
back of product mix improvement and domestic business overcoming emission
upgrade cost for trucks is encouraging. Buy, for earnings upgrade ahead.
Consolidated results surprise by 11% on EBITDA
! Net sales Rs.316.9bn, +21.7% yoy, 10% qoq. RBS est Rs.298.2bn
! EBITDA margin 15.2%, +350bps yoy, +70bps qoq. RBS est 14.6%.
! Interest expenses dip 6% qoq and 8.5% yoy due to equity fund raising.
! Normalised PAT Rs.24.6bn, +178% yoy, +17.3% qoq. RBS est Rs.20.6, Bloomberg
Rs.21.6bn.
! Adjusted for Rs.326.9mn forex loss. Reported PAT is Rs.24.2bn.
! Consolidate automobile business net debt to equity dips to 0.8.
Parent surprises by huge 30% on EBIDTA, as margins expand qoq
! Net sales Rs.115.2bn, +28.3% yoy, flat qoq. Rbs est Rs.106.1bn
! EBITDA margin 10.4%, +70 bps qoq. RBS est 8.8%.
! Raw material cost to net sales down 100bps qoq to 70%.
! EBITDA Rs.12.01bn, +4.3% yoy, +7.5% qoq. RBS est Rs.9.3bn.
! Normalised PAT Rs.4.3bn. +5% yoy, +4% qoq.
JLR margins scale new peak of 17.4%, +80bps qoq
! Net sales £2.66bn, +18.4% qoq. RBS est £2.53bn
! EBITDA £463mn, +24.3%. RBS est £430mn
! PAT £275mn, + 20.6% qoq. RBS est £249mn
Tata Motors
Enjoying the luxury ride
The 3Q result surprised by a wide margin at both the parent and JLR, driven by
sharp EBITDA margin expansion and better sales realisation per vehicle. Despite
growing market caution about domestic CV demand growth and JLR margins, we
upgrade EPS. The sharp reduction in consolidated net debt has impressed us.
Profitability continues to be a major surprise
Tata Motorís 3Q results surprised us and Bloomberg consensus by a wide margin as the
company recorded Rs24.2bn normalised PAT, driven by sharp qoq per-vehicle realisation
growth and EBITDA margin expansion in both JLR and parent operations. Parent EBITDA
margins expanded by 70bps qoq as the 8% qoq growth in net sales realisation per vehicle
helped overcome emission upgrade costs in commercial vehicles. JLR margins hit new
peaks of 17.4%, an 80bps improvement qoq. Consolidated net debt fell 22% qoq to
Rs214bn.
JLR drives EPS upgrade
We maintain parent profit forecasts despite the impressive 3Q performance, as we trim our
Nano sales volume estimate, but this is offset by our upgrade in commercial vehicle business
profitability post the October 2010 emission upgrade. For JLR, we upgrade PAT by 23-26%,
driven by the improved sales realisation and margins seen in the results. However, for FY12-
13F, we set our JLR EBITDA margin at 16.4%, lower than the 3Q peak. We upgrade
consolidated PAT by 16-18%, supported by lower interest costs on sharp debt reductions.
Luxury ride at attractive valuation, Buy
JLR sales volumes continue to surprise on a monthly trend, which we feel is sustainable on
new Land Rover product launches and China demand. In the Indian market, even though
truck operator profitability remains surprisingly healthy, we limit our short-term commercial
vehicle volume growth forecast to 9.7% in FY12. We trim our parent DCF valuation 7% to
Rs844 as we build in a higher risk-free rate. Meanwhile, our higher profitability forecast for
JLR is eaten into by lower peer-based valuations for other subsidiaries. In all, we increase
our SOTP-based TP slightly, to Rs1,498.9, at which the stock would trade at consolidated
valuation of 8.7x PE and 5.6x EV/EBITDA for FY12F with 20.8% EPS CAGR for FY11-13F.
Premium profits from luxury brand
A qoq surge in profit at the parent and JLR, despite component shortages, beat our
estimates and those of consensus by a wide margin. We upgrade consolidated PAT for
FY11-12 by 16-18% despite increasing caution on the domestic demand outlook. Buy.
Consolidated results surprise by 11% on EBITDA
! Net sales Rs316.9bn, +21.7% yoy, 10% qoq. RBS est Rs298.2bn
! EBITDA margin 15.2%, +350bps yoy, +70bps qoq. RBS est 14.6%.
! Interest expenses dip 6% qoq and 8.5% yoy, due to equity fund raising.
! Normalised PAT Rs24.6bn, +178% yoy, +17.3% qoq. RBS est Rs20.6, Bloomberg Rs21.6bn.
! Adjusted for Rs326.9mn forex loss. Reported PAT is Rs24.2bn.
! Consolidate automobile business net debt to equity dips to 0.8.
Parent surprises by 30% on EBITDA, as margins expand qoq
! Net sales Rs115.2bn, +28.3% yoy, flat qoq. Rbs est Rs106.1bn
! EBITDA margin 10.4%, +70 bps qoq. RBS est 8.8%.
! Raw material cost to net sales down 100bps qoq to 70%.
! EBITDA Rs12.01bn, +4.3% yoy, +7.5% qoq. RBS est Rs9.3bn.
! Normalised PAT Rs4.3bn. +5% yoy, +4% qoq.
JLR margins hit new peak of 17.4%, +80bps qoq
! Net sales £2.66bn, +18.4% qoq. RBS est £2.53bn
! EBITDA £463m, +24.3%. RBS est £430m
! PAT £275m, + 20.6% qoq. RBS est £249m
Management conference call highlights
Consolidated
! Consolidated automotive net debt to equity ratio was 0.8:1 as at the end of the quarter.
! Consolidated net debt was Rs214bn (from Rs275bn in 2QFY11), while the automotive debt
was Rs150bn (from Rs242bn in 2QFY11).
JLR
! JLR to introduce the new Range Rover model, Evoque, by mid-CY11.
! China is the top geography in terms of profitability, but is not the largest profit contributor for
JLR in terms of absolute amount.
! During the quarter, total R&D expenses at JLR were £172m, of which £116m was capitalised.
! Management has said it expects total R&D expenses at JLR to be 10-11% of net sales going
forward, which is in line with our expectations and peerís expenditures on R&D. On absolute
basis, management expects total JLR R&D expenses of £0.8bn-£1.0bn.
! Currently, around 20% of the total raw material requirement is sourced from low-cost
countries.
! Management said that raw material price negotiations may result in raw material cost
increases from next financial year.
! According to management, the tax shield available for JLR is expected to continue for the next
three to four years given the current trends.
! According to management, JLR hedges a percentage of its net foreign exchange exposure for
next 12-15 months. It further said that the percentage varies according to the business
requirement.
Standalone
! The current Nano production rate is about 10,000 vehicles per month and management
expects it to increase to about 15,000/month by March 2011 end.
! According to management, the Nano wholesale sales volume is also at about 10,000/month
currently.
! The company has taken a price increase of 1-1.5% across the product range in January 2011.
! Management said that the increase in steel and tyre prices could impact margins going
forward.
! The standalone annual capex requirement could be Rs25bn-30bn for the next two to three
years, according to management.
Raising EPS forecasts post impressive results
We are raising our consolidated EPS forecasts by 18% for FY11 and by 16% for FY12, driven
entirely by the upgrade to our JLR forecasts. Following are the main reasons for the upgrade:
! Incorporation of robust 3QFY11 performance;
! Historically high margins at JLR, which management expects to be supported by the good
response during the displays of the upcoming Range Rover Evoque;
! Changes in our forex rate assumption, which are favourable for JLR profitability.
At standalone level, we have downgraded our volume forecasts mainly for Nano, however, the
impact on profit is fully offset by our higher volume estimates for (more profitable) commercial
vehicles.
Valuation attractive, Buy maintained with new target price of Rs1,498.9
Increase in risk free rate to 8.2% trim parent value by 7%, whereas EPS is maintained.
JLR value per share increased sharply on a PAT upgrade of 25% and rise in peer set BMW
valuation. Other subsidiary values have dipped their Indian peer valuations have fallen.
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