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India Equity Research Reports, IPO and Stock News
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TATA MOTORS
Inline; JLR leads the way
�� Profit in line with estimate; JLR continues to soar
Tata Motors’ (TTMT) Q3FY11 adjusted consolidated PAT of INR 24.5 bn (up 2.7x
Y-o-Y, 17% Q-o-Q) was in line with estimate, but ahead of consensus estimate.
While standalone EBITDA, at INR 11.96 bn (up 6% Y-o-Y, 7% Q-o-Q) and
adjusted PAT at INR 4.4 bn (up 10% Y-o-Y, 3% Q-o-Q) were broadly in line with
estimates, JLR continued its strong trajectory by registering PAT of GBP 275 mn.
�� Domestic business performance in line
Domestic business EBITDA margin of 10.4% was 40bps above our expectation.
Improvement came on lower–than-expected raw material costs (down 100bps
Q-o-Q) despite a strong commodity cycle. MHCV sales recovered after being
sluggish in first two months of post emission norms. Profitability of LCV and car
segments (including Nano) is likely to remain under pressure on account of the
current competitive landscape.
�� JLR realisations jump 3% Q-o-Q; margins continue to expand
With better product mix (skewed towards higher value products), lower variable
expenses, better regional mix, Jaguar Land Rover’s (JLR) average realizations
rose 3% Q-o-Q and 22% Y-o-Y, further aided by favourable currency
movements. Due to better operating leverage its EBITDA margin further
expanded sequentially by another 80bps to 17.4% for Q3FY11, ahead of our
expectation of 16.2%.
�� Volume outlook on JLR as well as domestic market positive
With respect to JLR, management maintained that volume growth across regions
remains strong and on the cost matrix it will try to sustain raw material
pressures by deploying cost reduction initiatives and lower the breakeven point.
In the domestic market, it indicated that freight availability remains stable,
which augurs well for MHCV growth, and expects growth to sustain in LCV and
car segments. However, it expressed concern on rising commodity costs, which
in turn could dampen margins.
�� Outlook and valuations: Positive; maintain ‘BUY’
With a manageable consolidated net D/E of ~0.8x, stronger demand outlook,
and sustainably high EBITDA margin, we believe potential returns could
outweigh risks (rising interest and fuel rates, unfavourable currency movements,
potential crisis in Europe). We maintain ‘BUY/ Sector Outperformer’ rating on
the stock with a SOTP based target price of INR 1,470.
�� JLR: Running at full steam; EBITDA margins improve further
Demand for luxury cars has been robust across the globe, including Europe and US, but
stands out in China. Evoque will be launched mid June of CY11. In the past quarter,
TTMT was impacted by supply-side constraints, but with demand expected to remain
robust, the company will look to hike production through: (a) increasing employee
strength; (b) working with key suppliers, notably Ford for key engine supplies; and (c)
probably setting up assembly plants in China and India.
Management stated that it will look forward to maintain margins at the current level and
lower the breakeven level for JLR through a series of measures: (i) discounts would
remain at low levels given strong demand; and (ii) cost reduction initiatives, the benefit
of which is yet to completely flow through, are likely to counter the impact of higher raw
material costs/currency movements
�� Company Description
TTMT is India's largest automobile company with a presence in commercial and
passenger vehicles. It is the leader in nearly all commercial vehicle segments and the
third largest in the passenger vehicles market, with products in the compact and midsize
car, and utility vehicle segments. Through subsidiaries and associate companies, Tata
Motors has operations in the UK, South Korea, Thailand and Spain. Among them is
Jaguar Land Rover, the business comprising the two iconic British brands. It also has an
industrial joint venture with Fiat in India. It is also the world's fourth largest truck
manufacturer and the second largest bus manufacturer. Tata cars, buses and trucks are
being marketed in several countries in Europe, Africa, the Middle East, South Asia, South
East Asia and South America.
�� Investment Theme
Jaguar Land Rover has extremely high operating leverage. With the demand for luxury
cars likely to remain strong we expect JLR’s high EBITDA margins to persist. In addition
the company remains a strong player in the domestic market.
�� Key Risks
Double dip recession
Weakness in the European/ global market will lead to our thesis being reversed as a
higher operating leverage for JLR would lead to a disproportionate decrease in
profitability. Consequently, our earnings estimates would face tremendous downsides.
Better-than-expected performance of competitor launches
In the domestic market if new launches by competitors, particularly in the LCV space,
fare better than anticipated, then profitability could show a sharp uptick. For JLR, a
substantial market share decrease on account of new product launches by competitors
could lead to higher-than-expected profitability and margins.
Cross-currency movements
Our profit estimates factor in a reversal of the current currency benefits (notably the GBP
and GBP/ EUR). However, higher-than-expected unfavourable currency movements
would adversely impact JLR’s profitability.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TATA MOTORS
Inline; JLR leads the way
�� Profit in line with estimate; JLR continues to soar
Tata Motors’ (TTMT) Q3FY11 adjusted consolidated PAT of INR 24.5 bn (up 2.7x
Y-o-Y, 17% Q-o-Q) was in line with estimate, but ahead of consensus estimate.
While standalone EBITDA, at INR 11.96 bn (up 6% Y-o-Y, 7% Q-o-Q) and
adjusted PAT at INR 4.4 bn (up 10% Y-o-Y, 3% Q-o-Q) were broadly in line with
estimates, JLR continued its strong trajectory by registering PAT of GBP 275 mn.
�� Domestic business performance in line
Domestic business EBITDA margin of 10.4% was 40bps above our expectation.
Improvement came on lower–than-expected raw material costs (down 100bps
Q-o-Q) despite a strong commodity cycle. MHCV sales recovered after being
sluggish in first two months of post emission norms. Profitability of LCV and car
segments (including Nano) is likely to remain under pressure on account of the
current competitive landscape.
�� JLR realisations jump 3% Q-o-Q; margins continue to expand
With better product mix (skewed towards higher value products), lower variable
expenses, better regional mix, Jaguar Land Rover’s (JLR) average realizations
rose 3% Q-o-Q and 22% Y-o-Y, further aided by favourable currency
movements. Due to better operating leverage its EBITDA margin further
expanded sequentially by another 80bps to 17.4% for Q3FY11, ahead of our
expectation of 16.2%.
�� Volume outlook on JLR as well as domestic market positive
With respect to JLR, management maintained that volume growth across regions
remains strong and on the cost matrix it will try to sustain raw material
pressures by deploying cost reduction initiatives and lower the breakeven point.
In the domestic market, it indicated that freight availability remains stable,
which augurs well for MHCV growth, and expects growth to sustain in LCV and
car segments. However, it expressed concern on rising commodity costs, which
in turn could dampen margins.
�� Outlook and valuations: Positive; maintain ‘BUY’
With a manageable consolidated net D/E of ~0.8x, stronger demand outlook,
and sustainably high EBITDA margin, we believe potential returns could
outweigh risks (rising interest and fuel rates, unfavourable currency movements,
potential crisis in Europe). We maintain ‘BUY/ Sector Outperformer’ rating on
the stock with a SOTP based target price of INR 1,470.
�� JLR: Running at full steam; EBITDA margins improve further
Demand for luxury cars has been robust across the globe, including Europe and US, but
stands out in China. Evoque will be launched mid June of CY11. In the past quarter,
TTMT was impacted by supply-side constraints, but with demand expected to remain
robust, the company will look to hike production through: (a) increasing employee
strength; (b) working with key suppliers, notably Ford for key engine supplies; and (c)
probably setting up assembly plants in China and India.
Management stated that it will look forward to maintain margins at the current level and
lower the breakeven level for JLR through a series of measures: (i) discounts would
remain at low levels given strong demand; and (ii) cost reduction initiatives, the benefit
of which is yet to completely flow through, are likely to counter the impact of higher raw
material costs/currency movements
�� Company Description
TTMT is India's largest automobile company with a presence in commercial and
passenger vehicles. It is the leader in nearly all commercial vehicle segments and the
third largest in the passenger vehicles market, with products in the compact and midsize
car, and utility vehicle segments. Through subsidiaries and associate companies, Tata
Motors has operations in the UK, South Korea, Thailand and Spain. Among them is
Jaguar Land Rover, the business comprising the two iconic British brands. It also has an
industrial joint venture with Fiat in India. It is also the world's fourth largest truck
manufacturer and the second largest bus manufacturer. Tata cars, buses and trucks are
being marketed in several countries in Europe, Africa, the Middle East, South Asia, South
East Asia and South America.
�� Investment Theme
Jaguar Land Rover has extremely high operating leverage. With the demand for luxury
cars likely to remain strong we expect JLR’s high EBITDA margins to persist. In addition
the company remains a strong player in the domestic market.
�� Key Risks
Double dip recession
Weakness in the European/ global market will lead to our thesis being reversed as a
higher operating leverage for JLR would lead to a disproportionate decrease in
profitability. Consequently, our earnings estimates would face tremendous downsides.
Better-than-expected performance of competitor launches
In the domestic market if new launches by competitors, particularly in the LCV space,
fare better than anticipated, then profitability could show a sharp uptick. For JLR, a
substantial market share decrease on account of new product launches by competitors
could lead to higher-than-expected profitability and margins.
Cross-currency movements
Our profit estimates factor in a reversal of the current currency benefits (notably the GBP
and GBP/ EUR). However, higher-than-expected unfavourable currency movements
would adversely impact JLR’s profitability.
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