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Tata Motors::JLR lifts Tata Motors into orbit…
Tata Motors (TML) reported stellar Q3FY11 numbers on the back of
another impressive Jaguar Land Rover (JLR) performance. The
consolidated topline was at | 31,685.2 crore (up 21.3% YoY and 10.3%
QoQ) driven by JLR’s topline growth (up 35.6% YoY) and standalone
performance (up 28.3% YoY). Standalone net sales were slightly above
our expectations at | 11,519.6 crore, a 28.3% YoY jump (I-direct
estimate: | 11,006.1 crore) aided by volume and realisation jump of
17.3%, 9.4% YoY, respectively. On the margins front, TML’s standalone
soared as they improved 70 bps QoQ on higher low cost inventory and
SG&A costs management. On a consolidated basis, TML continues to
surprise positively with impressive margins at 15.2% (up 70 bps QoQ
and 380 bps YoY) as JLR, which contributes ~71% of EBITDA, had an
impressive 17.4% margin. The JLR business contributed ~59% on
topline and ~79% on bottomline as volume growth remained strong in
Q3FY11 (13.6% YoY), a richer product mix and favourable geographies.
On bottomline, the standalone and consolidated numbers were at |
410.0 crore (2.5% YoY jump) and | 2,424.4 crore (277% QoQ jump),
respectively. It has improved on higher accumulated tax credits.
Key highlights of the quarter
Tata Motors continued to show a strong growth momentum at the
standalone and subsidiary level. On the standalone front, volumes grew
at 14.3% YoY to touch 1,94,085 units driven by 21.5% YoY growth in the
CV segment and 55% YoY rise in the export segment. JLR continued the
impressive performance with a volume growth of 11% in the wholesale
segment at 63,155 units due to strong growth in North America, China
and Russia (together contributing YTD 39% of volumes). The ripening
product mix with the new XJ and growing sales in the top-end Range
Rover segment along with improving geographical sales led to average
realisation improvement of ~14.4% on a QoQ basis.
Valuation
We have valued TML on an SOTP basis. We have valued the standalone
business at | 569, JLR at | 836 and other major subsidiaries at | 73. We
have also valued the investment book at | 45/share and maintain our
target price of | 1523. We change our rating from BUY to STRONG BUY.
Result analysis
Domestic economic environment
The macro scenario looks positive as the IIP growth for the “transport
equipment” segment has been the strongest YTD. Again, on a positive
note, freight rates continue to be firm reflecting the strong nature of
demand. We expect stronger traction in the CV industry in FY12 with the
construction and infrastructure space witnessing traction with higher
degree of governmental project awarding.Though the economic
environment has been strong and GDP growth is expected to be above
8% for FY11, rising inflation and rising interest rates are expected to be an
area of concern
Standalone business
TML has continued on the strong growth trend set up in FY11 in both the
passenger vehicles (PV) and commercial vehicle (CV) segments with
volumes increasing 4.7% and 21.5% YoY to 64,501 units and 1,13,622
units, respectively. However, the dip in Nano sales in October and
November 2010 led to a softening of PV volumes towards the end of the
year. However, with stronger marketing and easing production hassles
the management is confident of maintaining a Nano run rate of ~10,000
units.
The market share in the CV segment has seen a degree of stabilisation at
~58.3% even as competition in both the LCV (56.7% market share YTD)
and MHCV (~60% market share YTD) segment continues to rise with
newer entrants like M&M Navistar. The ACE family continues to be the
leading driver in the sub-1 tonne LCV segment and would see higher
volume growth with the ramp up of the Pantnagar facility. TML is looking
to expand the capacity of the ACE family. It is expected to set up a new
facility for the same. CV demand is expected to get the next push through
the haulage segment as railways continues to remain a laggard and
would continue to witness a higher shift of railway freight to road freight.
The market share of the PV segment has not seen a strong move and
remains at ~14% as Nano sales had seen a short-term decline even as
the Indigo family continues to do well in the entry level sedan. The latest
launch of the Aria in the mid-priced UV segment has received a strong
response. With the launch of the Winger Platinum, the company is
expected to witness better volumes in the UV segment.
Jaguar and Land Rover (JLR)
The JLR turnaround has been a unique success story. The volume growth
continues to be positive for the retail (58,409 units; 13.6% YoY jump) as
well as wholesale (63,155 units; 6% YoY jump) segment for Q3FY11.
These saw strong growth in markets like China, Russia and North
America, which have improved the volume share to 11.7%, 5.1% and
22.2% from 7%, 4% and 21%, respectively, in June 2010. This
geographical shift has helped in improving the sales mix and realisations.
The positive model mix has been driven by the new XJ, XK gaining
market share and Range Rover’s growing popularity, which ultimately
reflected in the realisation jump of 14.4% QoQ.
On further evaluation, some regions have shown a drop in sales like the
UK and Europe that have both seen a drop of 12-13% mainly due to the
cessation of the classic X-type, which used to contribute ~20% of
Jaguar’s total volume. On the Land Rover front, in the UK, the Defender
and Freelander products saw segment growth of 11% and 19%,
respectively.
The decline in Jaguar’s overall volumes was partly attributable to X-type
volumes cessation and supply constraints for the recently launched XJ.
On the Land Rover front, demand remained high even as Discovery,
Range Rover saw similar hassles while Freelander and RR Sport continue
to see 17-18% kind of YoY growth. The demand outlook remains healthy
with average waiting period ranging from three to five weeks as the
company continues to ease out supply constraints with various models.
The JLR performance, on the whole, continues to be stunning with
stronger EBITDA margin and strong cash flows compared to global peers.
Tata Daewoo Commercial Vehicle (TDCV)
The company reported Q3FY11 net sales of | 658.2 crore, a ~12.3% YoY
increase due to higher realisations even as volumes slowed down ~2.4%
in Q3FY11 at 1,905 units, mainly on account of lower domestic market
sales. EBITDA margins declined 310 bps QoQ at 3.6% as higher input
prices dented profitability. The company had earlier launched TDSC as
the sole distributor. Thus, in the process, it has been unable to ramp up
the network. The company, thus, reported a loss of | 4.4 crore against a
profit of | 7.7 crore in the previous quarter.
Tata Technologies (TTL)
The net sales of TTL for Q3FY11 increased 12.3% YoY from | 279 crore to
| 313.1 crore as the growth momentum remained strong in the North
America and Asia Pacific (APAC) regions from marquee clients in the
automotive and aerospace business. EBITDA margins remained flat at
12.5% as higher employee costs and rising attrition remain a challenge in
the competitive atmosphere. The PAT reported in Q3FY11 has been at |
28.3 crore (29.5% YoY jump) while the nine-month PAT came at | 91.5
crore (76.6% YoY increase).
HV Axles (HVTL) and HV Transmission (HVTL)
The rise in demand in the domestic CV market has propelled the axles
and gear boxes demand, thereby increasing the topline of HVTL and
HVAL. HVAL had net sales of | 72.6 crore, a 19.7% YoY growth with net
profit growth of 23.4% at | 20.0 crore. HVTL reported a topline jump of
35.1% to | 73.4 crore and a net profit rise of 49.3% to | 21.5 crore. Both
companies undertook costs control exercises successfully to help
improve PAT margins by 280 bps, 80 bps at 29.3%, 27.5% for HVTL and
HVAL, respectively. The companies are mulling an amalgamation of both
companies into one entity. This would be helpful in servicing the clients
and provide better cost efficiencies.
Tata Motors Finance (TMFL)
TMFL, the non banking financial arm of TML, had a sequentially weaker
Q3FY11 as net revenue declined 2.8% QoQ to | 331.8 crore. The number
of disbursals at 37,190 saw a 6.4% QoQ rise and is not properly reflected
in the revenue comparison YoY as Q3FY10 had a | 107.5 crore
securitisation income included. The book size at the end of Q3FY11 for
TMFL stood at | 8,294 crore while for TML it was at | 331 crore. TMFL has
a market share of 19.5% for nine months while the net interest margins of
the vehicle financing business stood at 10.3%. On the PAT front, the
company reported a 26.8% QoQ decline in Q3FY11 at | 32.8 crore.
Outlook and valuation
Outlook
The outlook for the standalone operations remains positive even as
concerns over inflation and rising interest rates remain immediate. On the
CV segment, the rising freight rates and demand in the haulage segment
continue to be positive indicators for the future. We expect FY12 to
witness a stronger pick-up in infrastructure and construction related
activities as NHAI is expected to clear pending orders of the previous year
along with fresh orders for FY12E.
On the PV front, the company has witnessed challenges emerging from
the intermediate slowdown in Nano’s volumes. TML has started to
address the issue with stronger marketing and better product positioning.
The management is confident of maintaining a run rate of ~10,000 units
for the same. TML has launched a variety of new launches like Indigo
Manza, Aria and Winger Platinum. These are expected to help volume
traction in the mid-sized sedan segment as well as in the UV segment.
On the subsidiaries front, JLR continues to show the hidden value of a
strong brand, which TML is now effectively encashing along with high
quality products and increasing geographical presence. The demand, at
present, is not witnessing any slowdown worries as the variable
incentives and discounts for JLR products have remained minimal. It has
continued to increase its contribution and stands at a whopping 59% (up
~810 bps QoQ) to the consolidated topline and an even more impressive
79% (up 450 bps QoQ) to the consolidated bottomline. On the margins
front, JLR continues to surprise as at 17.4% it is one of the strongest
among all global auto behemoths. The management, in turn, remains
positive on the margin maintenance due to higher degree of value-added
content in JLR products even while being apprehensive on rising
commodity prices across the globe.
The company has seen a certain degree of currency benefit towards JLR.
Even though it continues to have forward covers to a certain degree it
continues to remain a challenge. On the overall net auto-debt front, TML
has successfully brought the D/E level to 0.8 with the net debt at ~|
21,300 crore post the successful completion of QIP to the tune of ~$750
million through ordinary and “A ordinary” shares.
JLR is expected to turn aggressive and launch newer 2011 models to
enrich its product mix further (Range Rover Evoque slated to be launched
by mid-CY11). Also, it would continue to focus increasingly on the ever
growing Chinese market where volumes have jumped highest by ~72%
and contribution has risen to double digits in CY10. Meanwhile, among
other subsidiaries, Tata Motors Finance has continued to show a strong
turnaround on the operating front as it is expected to keep its momentum
going with sales growth of parent company Tata Motors. However, TDCV
has seen a seasonal decline in profits and would be closely monitored in
the coming quarters as it is a significant contributor to revenues apart
from JLR.
Valuation
We have upgraded our standalone volumes and sales estimates for FY11
and FY12 on the back of the volume performance demonstrated in
9MFY11. However, we have factored in higher input cost pressures by
slightly lowering our standalone EPS estimates by 1% in FY11 to | 28.6.
We have factored in consolidated revenues from JLR and value the per
share contribution of JLR at | 836 per share (~55% of target price). We
expect JLR to continue to see stronger volume growth and a richer
product mix with the launch of newer models in FY11. However, the
increase in product development expenses would also restrict higher
profit jump. However, in FY13E we would see the strong topline and
operational efficiencies coming into full effect. The main concerns for JLR
would arise from higher input prices and any adverse currency
fluctuations. This could further reduce domestic profitability and erode
JLR’s margins.
We have valued the stock on an SOTP basis. We have valued the
standalone business at 14x FY12 EPS of | 40.7 to arrive at | 569, JLR at
5.0x EV/EBITDA to arrive at | 836 and other major subsidiaries at | 73
post 15% holding company discount. We have also valued the
investment book of the company at 0.1x BV for unquoted investments
and market value of quoted investments to reach | 45 per share and
maintain our target price of | 1523. We have upgraded the stock from
BUY to STRONG BUY.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Motors::JLR lifts Tata Motors into orbit…
Tata Motors (TML) reported stellar Q3FY11 numbers on the back of
another impressive Jaguar Land Rover (JLR) performance. The
consolidated topline was at | 31,685.2 crore (up 21.3% YoY and 10.3%
QoQ) driven by JLR’s topline growth (up 35.6% YoY) and standalone
performance (up 28.3% YoY). Standalone net sales were slightly above
our expectations at | 11,519.6 crore, a 28.3% YoY jump (I-direct
estimate: | 11,006.1 crore) aided by volume and realisation jump of
17.3%, 9.4% YoY, respectively. On the margins front, TML’s standalone
soared as they improved 70 bps QoQ on higher low cost inventory and
SG&A costs management. On a consolidated basis, TML continues to
surprise positively with impressive margins at 15.2% (up 70 bps QoQ
and 380 bps YoY) as JLR, which contributes ~71% of EBITDA, had an
impressive 17.4% margin. The JLR business contributed ~59% on
topline and ~79% on bottomline as volume growth remained strong in
Q3FY11 (13.6% YoY), a richer product mix and favourable geographies.
On bottomline, the standalone and consolidated numbers were at |
410.0 crore (2.5% YoY jump) and | 2,424.4 crore (277% QoQ jump),
respectively. It has improved on higher accumulated tax credits.
Key highlights of the quarter
Tata Motors continued to show a strong growth momentum at the
standalone and subsidiary level. On the standalone front, volumes grew
at 14.3% YoY to touch 1,94,085 units driven by 21.5% YoY growth in the
CV segment and 55% YoY rise in the export segment. JLR continued the
impressive performance with a volume growth of 11% in the wholesale
segment at 63,155 units due to strong growth in North America, China
and Russia (together contributing YTD 39% of volumes). The ripening
product mix with the new XJ and growing sales in the top-end Range
Rover segment along with improving geographical sales led to average
realisation improvement of ~14.4% on a QoQ basis.
Valuation
We have valued TML on an SOTP basis. We have valued the standalone
business at | 569, JLR at | 836 and other major subsidiaries at | 73. We
have also valued the investment book at | 45/share and maintain our
target price of | 1523. We change our rating from BUY to STRONG BUY.
Result analysis
Domestic economic environment
The macro scenario looks positive as the IIP growth for the “transport
equipment” segment has been the strongest YTD. Again, on a positive
note, freight rates continue to be firm reflecting the strong nature of
demand. We expect stronger traction in the CV industry in FY12 with the
construction and infrastructure space witnessing traction with higher
degree of governmental project awarding.Though the economic
environment has been strong and GDP growth is expected to be above
8% for FY11, rising inflation and rising interest rates are expected to be an
area of concern
Standalone business
TML has continued on the strong growth trend set up in FY11 in both the
passenger vehicles (PV) and commercial vehicle (CV) segments with
volumes increasing 4.7% and 21.5% YoY to 64,501 units and 1,13,622
units, respectively. However, the dip in Nano sales in October and
November 2010 led to a softening of PV volumes towards the end of the
year. However, with stronger marketing and easing production hassles
the management is confident of maintaining a Nano run rate of ~10,000
units.
The market share in the CV segment has seen a degree of stabilisation at
~58.3% even as competition in both the LCV (56.7% market share YTD)
and MHCV (~60% market share YTD) segment continues to rise with
newer entrants like M&M Navistar. The ACE family continues to be the
leading driver in the sub-1 tonne LCV segment and would see higher
volume growth with the ramp up of the Pantnagar facility. TML is looking
to expand the capacity of the ACE family. It is expected to set up a new
facility for the same. CV demand is expected to get the next push through
the haulage segment as railways continues to remain a laggard and
would continue to witness a higher shift of railway freight to road freight.
The market share of the PV segment has not seen a strong move and
remains at ~14% as Nano sales had seen a short-term decline even as
the Indigo family continues to do well in the entry level sedan. The latest
launch of the Aria in the mid-priced UV segment has received a strong
response. With the launch of the Winger Platinum, the company is
expected to witness better volumes in the UV segment.
Jaguar and Land Rover (JLR)
The JLR turnaround has been a unique success story. The volume growth
continues to be positive for the retail (58,409 units; 13.6% YoY jump) as
well as wholesale (63,155 units; 6% YoY jump) segment for Q3FY11.
These saw strong growth in markets like China, Russia and North
America, which have improved the volume share to 11.7%, 5.1% and
22.2% from 7%, 4% and 21%, respectively, in June 2010. This
geographical shift has helped in improving the sales mix and realisations.
The positive model mix has been driven by the new XJ, XK gaining
market share and Range Rover’s growing popularity, which ultimately
reflected in the realisation jump of 14.4% QoQ.
On further evaluation, some regions have shown a drop in sales like the
UK and Europe that have both seen a drop of 12-13% mainly due to the
cessation of the classic X-type, which used to contribute ~20% of
Jaguar’s total volume. On the Land Rover front, in the UK, the Defender
and Freelander products saw segment growth of 11% and 19%,
respectively.
The decline in Jaguar’s overall volumes was partly attributable to X-type
volumes cessation and supply constraints for the recently launched XJ.
On the Land Rover front, demand remained high even as Discovery,
Range Rover saw similar hassles while Freelander and RR Sport continue
to see 17-18% kind of YoY growth. The demand outlook remains healthy
with average waiting period ranging from three to five weeks as the
company continues to ease out supply constraints with various models.
The JLR performance, on the whole, continues to be stunning with
stronger EBITDA margin and strong cash flows compared to global peers.
Tata Daewoo Commercial Vehicle (TDCV)
The company reported Q3FY11 net sales of | 658.2 crore, a ~12.3% YoY
increase due to higher realisations even as volumes slowed down ~2.4%
in Q3FY11 at 1,905 units, mainly on account of lower domestic market
sales. EBITDA margins declined 310 bps QoQ at 3.6% as higher input
prices dented profitability. The company had earlier launched TDSC as
the sole distributor. Thus, in the process, it has been unable to ramp up
the network. The company, thus, reported a loss of | 4.4 crore against a
profit of | 7.7 crore in the previous quarter.
Tata Technologies (TTL)
The net sales of TTL for Q3FY11 increased 12.3% YoY from | 279 crore to
| 313.1 crore as the growth momentum remained strong in the North
America and Asia Pacific (APAC) regions from marquee clients in the
automotive and aerospace business. EBITDA margins remained flat at
12.5% as higher employee costs and rising attrition remain a challenge in
the competitive atmosphere. The PAT reported in Q3FY11 has been at |
28.3 crore (29.5% YoY jump) while the nine-month PAT came at | 91.5
crore (76.6% YoY increase).
HV Axles (HVTL) and HV Transmission (HVTL)
The rise in demand in the domestic CV market has propelled the axles
and gear boxes demand, thereby increasing the topline of HVTL and
HVAL. HVAL had net sales of | 72.6 crore, a 19.7% YoY growth with net
profit growth of 23.4% at | 20.0 crore. HVTL reported a topline jump of
35.1% to | 73.4 crore and a net profit rise of 49.3% to | 21.5 crore. Both
companies undertook costs control exercises successfully to help
improve PAT margins by 280 bps, 80 bps at 29.3%, 27.5% for HVTL and
HVAL, respectively. The companies are mulling an amalgamation of both
companies into one entity. This would be helpful in servicing the clients
and provide better cost efficiencies.
Tata Motors Finance (TMFL)
TMFL, the non banking financial arm of TML, had a sequentially weaker
Q3FY11 as net revenue declined 2.8% QoQ to | 331.8 crore. The number
of disbursals at 37,190 saw a 6.4% QoQ rise and is not properly reflected
in the revenue comparison YoY as Q3FY10 had a | 107.5 crore
securitisation income included. The book size at the end of Q3FY11 for
TMFL stood at | 8,294 crore while for TML it was at | 331 crore. TMFL has
a market share of 19.5% for nine months while the net interest margins of
the vehicle financing business stood at 10.3%. On the PAT front, the
company reported a 26.8% QoQ decline in Q3FY11 at | 32.8 crore.
Outlook and valuation
Outlook
The outlook for the standalone operations remains positive even as
concerns over inflation and rising interest rates remain immediate. On the
CV segment, the rising freight rates and demand in the haulage segment
continue to be positive indicators for the future. We expect FY12 to
witness a stronger pick-up in infrastructure and construction related
activities as NHAI is expected to clear pending orders of the previous year
along with fresh orders for FY12E.
On the PV front, the company has witnessed challenges emerging from
the intermediate slowdown in Nano’s volumes. TML has started to
address the issue with stronger marketing and better product positioning.
The management is confident of maintaining a run rate of ~10,000 units
for the same. TML has launched a variety of new launches like Indigo
Manza, Aria and Winger Platinum. These are expected to help volume
traction in the mid-sized sedan segment as well as in the UV segment.
On the subsidiaries front, JLR continues to show the hidden value of a
strong brand, which TML is now effectively encashing along with high
quality products and increasing geographical presence. The demand, at
present, is not witnessing any slowdown worries as the variable
incentives and discounts for JLR products have remained minimal. It has
continued to increase its contribution and stands at a whopping 59% (up
~810 bps QoQ) to the consolidated topline and an even more impressive
79% (up 450 bps QoQ) to the consolidated bottomline. On the margins
front, JLR continues to surprise as at 17.4% it is one of the strongest
among all global auto behemoths. The management, in turn, remains
positive on the margin maintenance due to higher degree of value-added
content in JLR products even while being apprehensive on rising
commodity prices across the globe.
The company has seen a certain degree of currency benefit towards JLR.
Even though it continues to have forward covers to a certain degree it
continues to remain a challenge. On the overall net auto-debt front, TML
has successfully brought the D/E level to 0.8 with the net debt at ~|
21,300 crore post the successful completion of QIP to the tune of ~$750
million through ordinary and “A ordinary” shares.
JLR is expected to turn aggressive and launch newer 2011 models to
enrich its product mix further (Range Rover Evoque slated to be launched
by mid-CY11). Also, it would continue to focus increasingly on the ever
growing Chinese market where volumes have jumped highest by ~72%
and contribution has risen to double digits in CY10. Meanwhile, among
other subsidiaries, Tata Motors Finance has continued to show a strong
turnaround on the operating front as it is expected to keep its momentum
going with sales growth of parent company Tata Motors. However, TDCV
has seen a seasonal decline in profits and would be closely monitored in
the coming quarters as it is a significant contributor to revenues apart
from JLR.
Valuation
We have upgraded our standalone volumes and sales estimates for FY11
and FY12 on the back of the volume performance demonstrated in
9MFY11. However, we have factored in higher input cost pressures by
slightly lowering our standalone EPS estimates by 1% in FY11 to | 28.6.
We have factored in consolidated revenues from JLR and value the per
share contribution of JLR at | 836 per share (~55% of target price). We
expect JLR to continue to see stronger volume growth and a richer
product mix with the launch of newer models in FY11. However, the
increase in product development expenses would also restrict higher
profit jump. However, in FY13E we would see the strong topline and
operational efficiencies coming into full effect. The main concerns for JLR
would arise from higher input prices and any adverse currency
fluctuations. This could further reduce domestic profitability and erode
JLR’s margins.
We have valued the stock on an SOTP basis. We have valued the
standalone business at 14x FY12 EPS of | 40.7 to arrive at | 569, JLR at
5.0x EV/EBITDA to arrive at | 836 and other major subsidiaries at | 73
post 15% holding company discount. We have also valued the
investment book of the company at 0.1x BV for unquoted investments
and market value of quoted investments to reach | 45 per share and
maintain our target price of | 1523. We have upgraded the stock from
BUY to STRONG BUY.
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