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Tata Motors (TTMT IN)
Automobiles
In-line quarter. 3QFY11 consolidated recurring PAT of Rs24.6 bn (+17% qoq) was in
line with our estimates. Standalone profits were 31% ahead of our estimates due to
better-than-expected realizations while JLR profit missed our estimates by 13% largely
due to increase in product development expenses. We maintain our ADD rating on the
stock and increase our target price to Rs1,305 based on sum of parts valuation
methodology
3QFY11 had a few surprises but overall results were in line with estimates
• Consolidated recurring PAT was in line with our estimates. While standalone profit was 31%
ahead of our estimates, JLR profits missed our estimates by 13%. Standalone profits were
higher than our estimates due to 6.4% qoq improvement in average realizations (4% higher
than our estimates) which led to 60 bps qoq improvement in EBITDA margins despite volumes
declining by 6% qoq. EBITDA margins for standalone operations were 10.1% (90 bps higher
than our estimates).
• JLR reported a 13% qoq growth in profits in 3QFY11 driven by 3% qoq improvement in
average selling prices and 15% qoq increase in volumes. Volumes increased by 15% qoq
primarily due to robust growth in North America and China sales. Average selling prices
increased by 3.3% qoq aided by (1) improvement in product mix and geographical mix, (2)
decline in variable incentives and (3) marginal benefit due to currency.
• EBITDA margins of JLR came in at 17.4% (increased by 80 bps qoq) which was in line with our
estimates while it was ahead of consensus expectations. Although EBITDA was in line with our
estimates, profit after tax was 12% below our estimates primarily due to increase in product
development expense. Company also indicated that product development expenses are likely to
increase going forward due to increase in number of new product launches.
• We have increased our R&D + capex estimates for JLR from GBP1 bn to GBP1.1 bn (GBP900 mn
– R&D and GBP200 mn – capex) as we expect R&D expenses to increase as JLR will have to
aggressively launch new models to compete with its rivals. Company’s next new model Evoque
is expected to be launched in mid-CY2011E.
We maintain our ADD rating
We maintain our ADD rating on the stock and increase our target price to Rs1,305 (from Rs 1,235).
We value the company on sum of parts valuation methodology. We value the standalone business
at Rs592/share, JLR at Rs604/share and rest of the subs at Rs105/share.
Maintain our ADD rating
We maintain our ADD rating on the stock and increase our target price to Rs1,305. We
value the company on sum of parts valuation methodology. We value the standalone
business at Rs592/share, JLR at Rs604/share and rest of the subsidiaries at Rs105/share.
We have marginally adjusted our estimates. We have increased our standalone estimates by
~8-10% over FY2011-2013 factoring in higher realizations and higher EBITDA margins while
we have cut our JLR earnings by 5-11% over FY2011-2013E factoring in higher product
development expenses. We have also increased our capex + R&D estimates for JLR from
GBP1 bn earlier to GBP1.1 bn in FY2012-2013E (R&D – GBP900 mn and capex – GBP200
mn).
We have cut our consolidated earnings by 2-7% over FY2011-2013E but our target price
has been almost maintained largely due to sharp reduction in debt. We were earlier
factoring in Rs150 bn of automotive net debt by end-FY2012E which has been reduced to
Rs132 bn now.
Standalone results were buoyed by improvement in product mix
3QFY11 net sales were 4% above our estimates driven by improvement in product mix.
Contribution of CVs in the overall volumes increased to 60% in 3QFY11 vs 53% in 2QFY11.
Average selling prices were up 6% qoq and 11% yoy which surprised us positively.
Company had also taken an average price increase of 1-1.5% during the quarter which also
aided the improvement in realizations. Passenger vehicle sales declined by 10% qoq due to
loss of market share while Nano sales nosedived (-59% qoq) due to higher inventory with
the dealers and limited distribution.
Raw material costs per vehicle increased by Rs20,172 qoq while declined as a % of sales by
1% due to richer product mix and pricing actions taken by the company. Company
indicated that raw material pressures are expected to increase in 4QFY11E and margins are
expected to be under pressure. Company had taken an average price increase of 1-1.5% on
January 1, 2011 to partially mitigate impact of rising raw material costs.
EBITDA margins increased by 60 bps qoq and were 90 bps above our estimates. Recurring
profit after tax of Rs4,406 mn (+4% yoy, 3% qoq) was 31% ahead of our estimates.
During the period company also converted US$302 mn convertible bonds into ordinary
shares. Ordinary shares increased to 633 mn. During 3QFY11, company raised US$750 mn
through QIP which helped the company reduce its net debt/equity to 0.67 on December
2010 vs 1.16 as of Sep 2010.
JLR performance was in line with our estimates
JLR reported a 13% qoq growth in profits in 3QFY11 driven by improvement in average
selling prices and 15% qoq increase in volumes. Volumes increased by 15% qoq primarily
due to robust growth in North America and China sales. Average selling prices increased by
3.3% qoq aided by (1) improvement in product and geographical mix, (2) decline in variable
incentives and (3) marginal benefit due to currency.
EBITDA margins at 17.4% increased by 80 bps qoq which was in line with our estimates
while it was ahead of consensus expectations. Company indicated that they have fixed
annual contracts on major raw materials and hence raw material prices are likely to increase
only marginally in 4QFY11E. Raw material contracts will be up for negotiation in 1QFY12E.
China now forms 13% of JLR volumes and volumes have more than doubled in 9MFY11
which bodes well for JLR as it is the most profitable geography for JLR.
Cost reduction initiatives are on track. Company currently sources 20% of its raw materials
from low-cost countries and plans to increase it to 35% over the next few years. Company is
also actively looking at setting up a national sales company in China.
Although EBITDA was in line with our estimates, profit after tax was 12% below our
estimates primarily due to increase in product development expense. Company also
indicated that product development expenses are likely to increase going forward due to
increase in number of new product launches. Company also guided that capex and R&D
spend is likely to be around GBP1 bn annually and could increase going forward as new
products are being developed by the company.
Consolidated profits were in line with estimates
Consolidated recurring profit of Rs24,571 mn (+202% yoy, +17% qoq) was in line with our
estimates. Standalone surprise was offset by lower JLR profits due to increase in product
development expense. Consolidated net debt stood at Rs150 bn and net automotive
debt/equity stood at 0.8 as of Dec 2010. Company reduced its consolidated net debt by
Rs66 bn sequentially driven by (1) Rs34 bn raised through recent US$750 mn QIP issue, (2)
Rs13.6 bn of bonds were converted into equity, (3) Rs12.5 bn free cash flow generated (ex
working capital) from JLR and parent operations and (4) Rs6 bn saving in working capital,
according to our calculation.
Tata Technologies: Slightly weaker quarter after a strong 2QFY11
1) Sales of the company are fairly diversified among automotive and aerospace clients
across geographies. North America forms 37% of total revenues, Asia Pacific
(including India) forms 33% of total revenues and Europe comprises rest 31% of
sales.
2) Revenues grew by 12% yoy in 3QFY11 while EBITDA margins declined marginally
by 20 bps yoy and 340 bps qoq on account of rise in salary expenses. Profit after
tax for 9MFY11 is up by 77% yoy.
Tata Motor finance: NIMs decline qoq in 3QFY11
1) Total vehicle disbursements of Rs18.6 bn (+18% yoy, +5% qoq) grew at a healthy
pace.
2) Book size of Tata Motor finance and Tata Motors Limited stood at Rs83 bn(+10%
qoq) and Rs3.3 bn (-20% qoq) in 3QFY11. Total vehicle financing book size
increased by 8% qoq. Tata Motors Limited standalone vehicle financing book
reduced by Rs840 mn in 3QFY11.
3) Tata Motor finance, however, lost market share during the quarter. 9MFY11
market share stood at 19.5% vs 20.7% for 1HFY11.
4) Net Interest margins were also under pressure during the quarter. NIM for 9MFY11
stood at 10.3% vs 10.9% in 2QFY11, which we believe could be due to increase in
competitive intensity.
Tata Daewoo: Margins decline qoq despite improvement in market share
1) Volumes declined by 2.4% yoy but were flat qoq. Market share, however,
improved to 25.5% in 3QFY11 vs 22.6% in 2QFY11.
2) EBITDA margins declined by 3.1% sequentially which we believe could be due to
aggressive sales push from company’s own distribution network. Distribution
company TDSC (100% owned by Tata Daewoo) was launched in July 2010 and
now is fully operational. Its existing tie-up with DMSC was terminated from
November 1, 2010.
3) Tata Daewoo reported a loss during the quarter due to lower volumes.
HV Axles and Transmissions: Raw material cost pressures were offset by cost control
initiatives
Both HV Axles and Transmissions reported a strong topline growth on the back of strong
growth in domestic commercial vehicle demand but margins declined sequentially due to
increase in raw material costs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Motors (TTMT IN)
Automobiles
In-line quarter. 3QFY11 consolidated recurring PAT of Rs24.6 bn (+17% qoq) was in
line with our estimates. Standalone profits were 31% ahead of our estimates due to
better-than-expected realizations while JLR profit missed our estimates by 13% largely
due to increase in product development expenses. We maintain our ADD rating on the
stock and increase our target price to Rs1,305 based on sum of parts valuation
methodology
3QFY11 had a few surprises but overall results were in line with estimates
• Consolidated recurring PAT was in line with our estimates. While standalone profit was 31%
ahead of our estimates, JLR profits missed our estimates by 13%. Standalone profits were
higher than our estimates due to 6.4% qoq improvement in average realizations (4% higher
than our estimates) which led to 60 bps qoq improvement in EBITDA margins despite volumes
declining by 6% qoq. EBITDA margins for standalone operations were 10.1% (90 bps higher
than our estimates).
• JLR reported a 13% qoq growth in profits in 3QFY11 driven by 3% qoq improvement in
average selling prices and 15% qoq increase in volumes. Volumes increased by 15% qoq
primarily due to robust growth in North America and China sales. Average selling prices
increased by 3.3% qoq aided by (1) improvement in product mix and geographical mix, (2)
decline in variable incentives and (3) marginal benefit due to currency.
• EBITDA margins of JLR came in at 17.4% (increased by 80 bps qoq) which was in line with our
estimates while it was ahead of consensus expectations. Although EBITDA was in line with our
estimates, profit after tax was 12% below our estimates primarily due to increase in product
development expense. Company also indicated that product development expenses are likely to
increase going forward due to increase in number of new product launches.
• We have increased our R&D + capex estimates for JLR from GBP1 bn to GBP1.1 bn (GBP900 mn
– R&D and GBP200 mn – capex) as we expect R&D expenses to increase as JLR will have to
aggressively launch new models to compete with its rivals. Company’s next new model Evoque
is expected to be launched in mid-CY2011E.
We maintain our ADD rating
We maintain our ADD rating on the stock and increase our target price to Rs1,305 (from Rs 1,235).
We value the company on sum of parts valuation methodology. We value the standalone business
at Rs592/share, JLR at Rs604/share and rest of the subs at Rs105/share.
Maintain our ADD rating
We maintain our ADD rating on the stock and increase our target price to Rs1,305. We
value the company on sum of parts valuation methodology. We value the standalone
business at Rs592/share, JLR at Rs604/share and rest of the subsidiaries at Rs105/share.
We have marginally adjusted our estimates. We have increased our standalone estimates by
~8-10% over FY2011-2013 factoring in higher realizations and higher EBITDA margins while
we have cut our JLR earnings by 5-11% over FY2011-2013E factoring in higher product
development expenses. We have also increased our capex + R&D estimates for JLR from
GBP1 bn earlier to GBP1.1 bn in FY2012-2013E (R&D – GBP900 mn and capex – GBP200
mn).
We have cut our consolidated earnings by 2-7% over FY2011-2013E but our target price
has been almost maintained largely due to sharp reduction in debt. We were earlier
factoring in Rs150 bn of automotive net debt by end-FY2012E which has been reduced to
Rs132 bn now.
Standalone results were buoyed by improvement in product mix
3QFY11 net sales were 4% above our estimates driven by improvement in product mix.
Contribution of CVs in the overall volumes increased to 60% in 3QFY11 vs 53% in 2QFY11.
Average selling prices were up 6% qoq and 11% yoy which surprised us positively.
Company had also taken an average price increase of 1-1.5% during the quarter which also
aided the improvement in realizations. Passenger vehicle sales declined by 10% qoq due to
loss of market share while Nano sales nosedived (-59% qoq) due to higher inventory with
the dealers and limited distribution.
Raw material costs per vehicle increased by Rs20,172 qoq while declined as a % of sales by
1% due to richer product mix and pricing actions taken by the company. Company
indicated that raw material pressures are expected to increase in 4QFY11E and margins are
expected to be under pressure. Company had taken an average price increase of 1-1.5% on
January 1, 2011 to partially mitigate impact of rising raw material costs.
EBITDA margins increased by 60 bps qoq and were 90 bps above our estimates. Recurring
profit after tax of Rs4,406 mn (+4% yoy, 3% qoq) was 31% ahead of our estimates.
During the period company also converted US$302 mn convertible bonds into ordinary
shares. Ordinary shares increased to 633 mn. During 3QFY11, company raised US$750 mn
through QIP which helped the company reduce its net debt/equity to 0.67 on December
2010 vs 1.16 as of Sep 2010.
JLR performance was in line with our estimates
JLR reported a 13% qoq growth in profits in 3QFY11 driven by improvement in average
selling prices and 15% qoq increase in volumes. Volumes increased by 15% qoq primarily
due to robust growth in North America and China sales. Average selling prices increased by
3.3% qoq aided by (1) improvement in product and geographical mix, (2) decline in variable
incentives and (3) marginal benefit due to currency.
EBITDA margins at 17.4% increased by 80 bps qoq which was in line with our estimates
while it was ahead of consensus expectations. Company indicated that they have fixed
annual contracts on major raw materials and hence raw material prices are likely to increase
only marginally in 4QFY11E. Raw material contracts will be up for negotiation in 1QFY12E.
China now forms 13% of JLR volumes and volumes have more than doubled in 9MFY11
which bodes well for JLR as it is the most profitable geography for JLR.
Cost reduction initiatives are on track. Company currently sources 20% of its raw materials
from low-cost countries and plans to increase it to 35% over the next few years. Company is
also actively looking at setting up a national sales company in China.
Although EBITDA was in line with our estimates, profit after tax was 12% below our
estimates primarily due to increase in product development expense. Company also
indicated that product development expenses are likely to increase going forward due to
increase in number of new product launches. Company also guided that capex and R&D
spend is likely to be around GBP1 bn annually and could increase going forward as new
products are being developed by the company.
Consolidated profits were in line with estimates
Consolidated recurring profit of Rs24,571 mn (+202% yoy, +17% qoq) was in line with our
estimates. Standalone surprise was offset by lower JLR profits due to increase in product
development expense. Consolidated net debt stood at Rs150 bn and net automotive
debt/equity stood at 0.8 as of Dec 2010. Company reduced its consolidated net debt by
Rs66 bn sequentially driven by (1) Rs34 bn raised through recent US$750 mn QIP issue, (2)
Rs13.6 bn of bonds were converted into equity, (3) Rs12.5 bn free cash flow generated (ex
working capital) from JLR and parent operations and (4) Rs6 bn saving in working capital,
according to our calculation.
Tata Technologies: Slightly weaker quarter after a strong 2QFY11
1) Sales of the company are fairly diversified among automotive and aerospace clients
across geographies. North America forms 37% of total revenues, Asia Pacific
(including India) forms 33% of total revenues and Europe comprises rest 31% of
sales.
2) Revenues grew by 12% yoy in 3QFY11 while EBITDA margins declined marginally
by 20 bps yoy and 340 bps qoq on account of rise in salary expenses. Profit after
tax for 9MFY11 is up by 77% yoy.
Tata Motor finance: NIMs decline qoq in 3QFY11
1) Total vehicle disbursements of Rs18.6 bn (+18% yoy, +5% qoq) grew at a healthy
pace.
2) Book size of Tata Motor finance and Tata Motors Limited stood at Rs83 bn(+10%
qoq) and Rs3.3 bn (-20% qoq) in 3QFY11. Total vehicle financing book size
increased by 8% qoq. Tata Motors Limited standalone vehicle financing book
reduced by Rs840 mn in 3QFY11.
3) Tata Motor finance, however, lost market share during the quarter. 9MFY11
market share stood at 19.5% vs 20.7% for 1HFY11.
4) Net Interest margins were also under pressure during the quarter. NIM for 9MFY11
stood at 10.3% vs 10.9% in 2QFY11, which we believe could be due to increase in
competitive intensity.
Tata Daewoo: Margins decline qoq despite improvement in market share
1) Volumes declined by 2.4% yoy but were flat qoq. Market share, however,
improved to 25.5% in 3QFY11 vs 22.6% in 2QFY11.
2) EBITDA margins declined by 3.1% sequentially which we believe could be due to
aggressive sales push from company’s own distribution network. Distribution
company TDSC (100% owned by Tata Daewoo) was launched in July 2010 and
now is fully operational. Its existing tie-up with DMSC was terminated from
November 1, 2010.
3) Tata Daewoo reported a loss during the quarter due to lower volumes.
HV Axles and Transmissions: Raw material cost pressures were offset by cost control
initiatives
Both HV Axles and Transmissions reported a strong topline growth on the back of strong
growth in domestic commercial vehicle demand but margins declined sequentially due to
increase in raw material costs.
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