Tata Motors- JLR continues to positively surprise, ::Standard Chartered Research

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Tata Motors
JLR continues to positively surprise, now contributes ~80% of consol earnings


 Standalone margins improve 70bps qoq led by
operational efficiencies and cost control.
 JLR continues to positively surprise on operational
performance, margins up 80bps qoq to 17.4%.
 Key subsidiary performance also improves in 3Q FY11;
net profit margin improved to 5.2% (+320bps yoy and
+390bps qoq).
 Maintain OUTPERFORM.



Standalone margins maintained – On a standalone basis,
Tata Motors reported 70bps qoq margin improvement to
10.4% led by operational efficiencies as well as cost
control. As a result, net profit was up 4% yoy (+3% qoq) to
Rs4.4bn.
JLR performance continues to improve – JLR continued
its strong operational performance with 80bps qoq margin
improvement to 17.4% (6
th
 consecutive quarter of margin
improvement). JLR reported net profit of £275m
(~Rs19.5bn), up 400% yoy and 16% qoq.
Key subsidiary performance – Combined operating
margins for its key subsidiaries have increased 490bps yoy
(-190bps qoq) to 26.1%. Combined net profit increased
72% yoy to Rs695m – PAT margin improved to 5.2%
(+320bps yoy and +390bps qoq).
Consolidated performance – Led by a robust improvement
at JLR as well as at the standalone entity, operating margin
improved 350bps yoy (+70bps qoq) to 15.2%. Adjusted net
profit after minority interest was up 17% qoq to Rs24.6bn
Valuations and outlook – Tata Motors is attractive for
multiple reasons – consistent improvement in JLR
performance, uptrend in domestic CV cycle, Nano
production ramp up. Maintain OUTPERFORM.


Standalone performance
 Revenue increased 28% yoy to Rs115.2bn driven by 15% yoy growth in volume and 12% yoy
growth in average realisations.
 Operating margin for the quarter improved 70bps qoq (-240bps yoy) to 10.4% led by
operational efficiencies as well as cost control. Absolute EBITDA for the quarter was up 4%
yoy (+7% qoq) to Rs12bn. Led by an improved operational performance, net profit was up 4%
yoy (+3% qoq) to Rs4.4bn.



JLR’s performance
 Revenue for the quarter increased 36% yoy (+18% qoq) to £2.7bn. Revenue growth was
driven by 11% yoy growth (+15%qoq) in volume and a robust 22% yoy growth (+3% qoq) in
average realizations. Improved product mix, favorable regional mix (with higher proportion of
total volumes from China, US etc) as well as favorable exchange movement helped improve
realizations. Land Rover volume was up 15% yoy at 49,983 units; Jaguar volume remained
flat yoy at 13,172 units.
 In terms of geography-wise performance, volume was driven by strong growth in markets like
China (+72% yoy), Russia (+24% yoy) and North America (+16% yoy). However, the UK
market witnessed a 13% decline, while volume in Europe was down 12% yoy. Retail sales
were up 6% yoy for the quarter at 58,368 units.
 Except for Defender, all of Land Rover’s models witnessed strong growth yoy; Freelander
grew 18% yoy, Range Rover Sport grew 17% yoy while Discovery increased 16% yoy. Lower
volumes at Jaguar were on account of softening of XF volumes, component supply issues
including availability of engines, ongoing delay in availability of XJ and the impact of cessation
of Jaguar X-Type, which ceased from Dec ’09.
 Led by better volume offtake, improved realizations as well as its continued cost cutting
efforts, margin improved 80bps qoq (+760bps yoy) to 17.4%. Absolute EBITDA for the quarter
was up 141% yoy (up 24% qoq) to £463m pounds (~Rs32.8bn).
 R&D and product development spend at JLR in the quarter was £172m, of which about
£116m was capitalized
 Led by a robust operational performance, JLR reported PAT of £275m (~Rs19.5bn) - up 400%
yoy and 16% qoq.
 JLR has signed an MOU that details its intention to sell ~40,000 new JLR’s in China with a
revenue potential of ~£1bn. China is the fastest growing market (probably the most profitable
as well) for JLR worldwide and now constitutes about 11% of total volume. This MOU is likely
to further boost JLR’s earnings in CY11 / CY12.


Key subsidiary performance highlights
 Amongst its key subsidiaries, HV Axles and HV Transmissions continued to be the most
profitable with combined operating margin of ~55%. Tata Daewoo, on the other hand, reported
a loss of about Rs44m in the quarter.
 Combined operating margin for its key subsidiaries/associates has increased 490bps yoy (-
190bps qoq) to 26.1%. Combined net profit margin improved to 5.2% (+320bps yoy and
+390bps qoq)


Consolidated performance
 Revenue for the quarter increased 21% yoy to Rs316bn. Led by a robust improvement at JLR
as well as at the standalone entity, operating margin improved 350bps yoy (+70bps qoq) to
15.2%. Adjusted net profit after minority interest was up 17% qoq to Rs24.6bn.