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Tata Motors (TTMT)
Automobiles
JLR loses market share in March due to capacity crunch. JLR volumes in March
2011 grew at a muted pace (+2.4% yoy) much slower than the industry growth (15%
yoy) due to capacity constraint related to the limited availability of engines from Ford
and high capacity utilization at its plants. Luxury car industry volumes have picked pace
in 1QCY11 growing at 19% yoy versus 13% yoy in 4QCY10 while JLR has not been
able to fully capitalize on this strong demand due to capacity constraints.
China and US shining while EU showing signs of weakness
US and China luxury car volumes of four key players increased by 15% and 72% yoy in CY2010
while European luxury car market grew at a muted 4% yoy. JLR outperformed the industry in all
the three major markets (EU, US and China) in CY2010 gaining market share from the other three
players. In 1QCY11, JLR has lost market share in Europe and Chinese markets while gained market
share in the US market. We believe Europe luxury car market will remain under pressure in
CY2011 while US and China market will continue to grow at a strong pace. Luxury car
manufacturers like BMW and Mercedes have guided to a >20% yoy volume growth in China in
CY2011. We forecast JLR volumes to increase by 15% yoy in both US and European markets while
we expect a muted 5% yoy volume growth in Europe.
JLR delivers on guidance and margins could surprise again in 4QFY2011
JLR surpassed its FY2011 guidance of 240,000 units by a slight margin driven by strong growth in
Land Rover volumes (+29% yoy) offsetting the weak performance of Jaguar (12% yoy). We
believe JLR EBITDA margins are likely to improve from 3QFY2011 levels driven by (1) increase in
higher margin Land Rover volumes in the product mix (LR will form 85% of total volumes in
4QFY2011 versus 79% in 3QFY2011), (2) we expect geographical mix to improve as China
volumes are likely to grow at 70% in 4QFY2011 versus overall volume growth of 5% yoy, (3)
incentives are declining due to strong volume growth and (4) we are unlikely to see any raw
material cost pressures in 4QFY2011 as JLR has fixed annual contracts till June 2011.
Maintain our Outperform rating on the stock with a target price of Rs 1,305
We maintain our Outperform rating on the stock with a sum-of-parts-valuation based target price
of Rs 1,305. We have been surprised by the strong volume growth of Land Rover in 4QFY2011 but
we would watch out for management guidance on capex. We expect product development and
capex to increase due to (1) upcoming product launches and (2) need to increase capacities to
meet strong demand.
JLR exceeds its target of 240,000 volumes in FY2011
Jaguar and Land Rover (JLR) March 2011 volumes were muted (+2.4% yoy), which we
believe was impacted due to capacity constraints but still exceeded its annual guidance of
240,000 units in FY2011 by a slight margin. JLR annual manned capacity is ~270,000 units
and installed capacity is ~300,000. The company is also not able to meet growing demand
of its vehicles (maximum monthly production is ~24,000-25,000 units) due to a shortage of
engines which are being supplied from Ford. According to the management, Ford is
supplying a higher number of engines than contracted with JLR and is in the process of
expanding capacity which should be available from mid CY2011.
Land Rover volumes have steadily increased in the product mix. Now LR contributes 85% of
JLR volumes in 4QFY2011 versus 73% in 1QFY2011, which bodes well for the margins, in our
view.
China and US shining while European luxury car market showing signs of
weakening
US and China luxury car volumes of four key players increased by 15% and 72% yoy in
CY2010 while European luxury car market grew at a muted 4% yoy. JLR has been showing
a stellar performance in all these three markets in CY2010 gaining market share from the
other 3 players. However, in 1QCY11, JLR lost market share in Europe and Chinese markets
while gaining market share in the US market. We believe Europe’s luxury car market will
remain under pressure in CY2011 while US and China market will continue to grow at a
strong pace.
We have forecasted a 15% yoy volume growth for JLR in US market in FY2012E and 15%
yoy growth in China market. Most luxury car players have guided for +20% volume growth
in China in CY2011 and we believe JLR could also grow at a similar pace.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Motors (TTMT)
Automobiles
JLR loses market share in March due to capacity crunch. JLR volumes in March
2011 grew at a muted pace (+2.4% yoy) much slower than the industry growth (15%
yoy) due to capacity constraint related to the limited availability of engines from Ford
and high capacity utilization at its plants. Luxury car industry volumes have picked pace
in 1QCY11 growing at 19% yoy versus 13% yoy in 4QCY10 while JLR has not been
able to fully capitalize on this strong demand due to capacity constraints.
China and US shining while EU showing signs of weakness
US and China luxury car volumes of four key players increased by 15% and 72% yoy in CY2010
while European luxury car market grew at a muted 4% yoy. JLR outperformed the industry in all
the three major markets (EU, US and China) in CY2010 gaining market share from the other three
players. In 1QCY11, JLR has lost market share in Europe and Chinese markets while gained market
share in the US market. We believe Europe luxury car market will remain under pressure in
CY2011 while US and China market will continue to grow at a strong pace. Luxury car
manufacturers like BMW and Mercedes have guided to a >20% yoy volume growth in China in
CY2011. We forecast JLR volumes to increase by 15% yoy in both US and European markets while
we expect a muted 5% yoy volume growth in Europe.
JLR delivers on guidance and margins could surprise again in 4QFY2011
JLR surpassed its FY2011 guidance of 240,000 units by a slight margin driven by strong growth in
Land Rover volumes (+29% yoy) offsetting the weak performance of Jaguar (12% yoy). We
believe JLR EBITDA margins are likely to improve from 3QFY2011 levels driven by (1) increase in
higher margin Land Rover volumes in the product mix (LR will form 85% of total volumes in
4QFY2011 versus 79% in 3QFY2011), (2) we expect geographical mix to improve as China
volumes are likely to grow at 70% in 4QFY2011 versus overall volume growth of 5% yoy, (3)
incentives are declining due to strong volume growth and (4) we are unlikely to see any raw
material cost pressures in 4QFY2011 as JLR has fixed annual contracts till June 2011.
Maintain our Outperform rating on the stock with a target price of Rs 1,305
We maintain our Outperform rating on the stock with a sum-of-parts-valuation based target price
of Rs 1,305. We have been surprised by the strong volume growth of Land Rover in 4QFY2011 but
we would watch out for management guidance on capex. We expect product development and
capex to increase due to (1) upcoming product launches and (2) need to increase capacities to
meet strong demand.
JLR exceeds its target of 240,000 volumes in FY2011
Jaguar and Land Rover (JLR) March 2011 volumes were muted (+2.4% yoy), which we
believe was impacted due to capacity constraints but still exceeded its annual guidance of
240,000 units in FY2011 by a slight margin. JLR annual manned capacity is ~270,000 units
and installed capacity is ~300,000. The company is also not able to meet growing demand
of its vehicles (maximum monthly production is ~24,000-25,000 units) due to a shortage of
engines which are being supplied from Ford. According to the management, Ford is
supplying a higher number of engines than contracted with JLR and is in the process of
expanding capacity which should be available from mid CY2011.
Land Rover volumes have steadily increased in the product mix. Now LR contributes 85% of
JLR volumes in 4QFY2011 versus 73% in 1QFY2011, which bodes well for the margins, in our
view.
China and US shining while European luxury car market showing signs of
weakening
US and China luxury car volumes of four key players increased by 15% and 72% yoy in
CY2010 while European luxury car market grew at a muted 4% yoy. JLR has been showing
a stellar performance in all these three markets in CY2010 gaining market share from the
other 3 players. However, in 1QCY11, JLR lost market share in Europe and Chinese markets
while gaining market share in the US market. We believe Europe’s luxury car market will
remain under pressure in CY2011 while US and China market will continue to grow at a
strong pace.
We have forecasted a 15% yoy volume growth for JLR in US market in FY2012E and 15%
yoy growth in China market. Most luxury car players have guided for +20% volume growth
in China in CY2011 and we believe JLR could also grow at a similar pace.
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