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India Equity Research Reports, IPO and Stock News
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India remains largest revenue contributor for the consolidated entity (37%), while JLR provides
global revenue spread. JLR with new product and joint engine development plan, prepares for
high growth. But creation of large JLR pension reserve, loss at Fiat and Hispano ventures
concern us.
Management expects
�� Rural market focus : Management highlights that for the industry as a whole, only 11% of cars
/UVs sales are contributed by rural market as compared to 48% for motorcycles. Hence with
affordable transport solutions and distribution channels, it plans to target rural markets for
growth.
JLR focuses on
�� India plans : with the start of Freelander assembly operations in May 2011, management
highlights that it is considering assembly of other LR products. It also discloses that, it is
examining joint engine development program, so that it can be manufactured both in India
and UK.
�� Managmenet indicates that in FY11, it was able to maintain or marginally improve JLR market
share in UK, US, Europe, Russia and China markets.
�� New products : Freelander 2 eD4 launched in FY11 is LR's first 2-wheel drive and most fuel
efficient vehicle to date. It plans to launch light weight Range Rover in 2012 and dieselelectric
hybrid in year 2013.
�� Pension liabilities increase reflected in the reserves: The JLR pension reserve increased by
Rs.20.2bn which were impacted due to change in actuarial assumptions. This led to a 112%
increase in consolidated pension liabilities to Rs.27.5bn in FY11.
Parent financials show sharp dip in creditor acceptance boosting working capital
�� Cash flow from operating activities declined by about 75% yoy to Rs.15.1bn due to a sharp
increase in working capital. The net core working capital (inventory + debtors- creditors) days
declined to (29) days from (67) days due to a sharp decrease in payables days.
�� FY11 saw the payables days declining to a record low of 79 days (121 days in FY10). The
decline in payables was mainly due to significant reduction in acceptances (i.e. bill
discounting activites). The management clarified that the company has cautiously decided to
maintain low level of acceptances since it was able to bridge the shortfall in cash through
cheaper fianancing. The company was able to reduce the debtor days while maintaining the
inventory days and hence, overall impact on company's liquidity looks positive.
�� The casting and forging sales for FY11 recorded sharp 51% growth to Rs.10.5bn as
compared to an overall 37% growth.
�� R&D expenditure declined to 2.5% of net sales, lowest in last five years. The yoy increase
was just 2% and the company may need to increase the expenses going forward (traditionally
3-5% of sales).
�� Publicity expenses rose to 1.5% of net sales, the highest ever as against a long term average
range of 1%. The higher expenses on Nano and Aria promotion could be the possible
reasons. We expect the expenses to normalise in coming years.
�� The company infused a further Rs.4.0bn by way of equity investments in its wholly owned
subsidiary Tata Motors Finance Limited.
�� The company also invested Rs.2bn in its 50:50 JV with Fiat. The JV made a net loss of
Rs.1.23bn vs a net loss of Rs.1.35bn in FY10.
Cash conversion of consolidated EBITDA increased to 93%
�� Geographical revenue mix : India-37%; US-12%; UK-11%; Rest of Europe- 12%; Rest of
world-27% with all the markets registering double digit yoy growth. The high growth markets
in FY11 were Rest of world (+68%) and US (+46%) while Rest of Europe (+15%) grew the
least.
�� Total capex declined to 7.3% of net sales in FY11 to Rs. 90.2bn as against 9.6% in FY10;
JLR accounted for 70% of total capex (vs 61% in FY10). The total yoy growth was just 2% but
we expect the growth to be 20% yoy in FY12.
�� The company was able to convert its 93% of EBITDA into the cash profit (before working
capital change and tax payment) as against 89% last year.
�� Working capital at consolidated level rose mainly due to decrease in payables as a % of
sales. Again, as explained above the decrease was due to low level of acceptance in line with
the new strategy of the company. Ignoring that, the working capital days at consolidated level
declined by 11 days thanks mainly to reduction in debtor days.
�� Out of the total capital work in progress of Rs.117.3bn at the end of FY11, Rs.92.1bn was
towards product development costs which will be capitalised gradually as the new products
are launched.
�� Tata Daewoo in FY11 was impacted by financial instability of its sole distributor in its domestic
market South Korea. This forced Tata Motors to start its own sales company and launch Euro
V trucks.
�� Tata Hispano : doubled its sales volume and increased its market share from 8% to 13% in
FY11. But financial performance remains poor as it reports Euro 60m net loss and carries
accumulated losses of Euro 260m.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India remains largest revenue contributor for the consolidated entity (37%), while JLR provides
global revenue spread. JLR with new product and joint engine development plan, prepares for
high growth. But creation of large JLR pension reserve, loss at Fiat and Hispano ventures
concern us.
Management expects
�� Rural market focus : Management highlights that for the industry as a whole, only 11% of cars
/UVs sales are contributed by rural market as compared to 48% for motorcycles. Hence with
affordable transport solutions and distribution channels, it plans to target rural markets for
growth.
JLR focuses on
�� India plans : with the start of Freelander assembly operations in May 2011, management
highlights that it is considering assembly of other LR products. It also discloses that, it is
examining joint engine development program, so that it can be manufactured both in India
and UK.
�� Managmenet indicates that in FY11, it was able to maintain or marginally improve JLR market
share in UK, US, Europe, Russia and China markets.
�� New products : Freelander 2 eD4 launched in FY11 is LR's first 2-wheel drive and most fuel
efficient vehicle to date. It plans to launch light weight Range Rover in 2012 and dieselelectric
hybrid in year 2013.
�� Pension liabilities increase reflected in the reserves: The JLR pension reserve increased by
Rs.20.2bn which were impacted due to change in actuarial assumptions. This led to a 112%
increase in consolidated pension liabilities to Rs.27.5bn in FY11.
Parent financials show sharp dip in creditor acceptance boosting working capital
�� Cash flow from operating activities declined by about 75% yoy to Rs.15.1bn due to a sharp
increase in working capital. The net core working capital (inventory + debtors- creditors) days
declined to (29) days from (67) days due to a sharp decrease in payables days.
�� FY11 saw the payables days declining to a record low of 79 days (121 days in FY10). The
decline in payables was mainly due to significant reduction in acceptances (i.e. bill
discounting activites). The management clarified that the company has cautiously decided to
maintain low level of acceptances since it was able to bridge the shortfall in cash through
cheaper fianancing. The company was able to reduce the debtor days while maintaining the
inventory days and hence, overall impact on company's liquidity looks positive.
�� The casting and forging sales for FY11 recorded sharp 51% growth to Rs.10.5bn as
compared to an overall 37% growth.
�� R&D expenditure declined to 2.5% of net sales, lowest in last five years. The yoy increase
was just 2% and the company may need to increase the expenses going forward (traditionally
3-5% of sales).
�� Publicity expenses rose to 1.5% of net sales, the highest ever as against a long term average
range of 1%. The higher expenses on Nano and Aria promotion could be the possible
reasons. We expect the expenses to normalise in coming years.
�� The company infused a further Rs.4.0bn by way of equity investments in its wholly owned
subsidiary Tata Motors Finance Limited.
�� The company also invested Rs.2bn in its 50:50 JV with Fiat. The JV made a net loss of
Rs.1.23bn vs a net loss of Rs.1.35bn in FY10.
Cash conversion of consolidated EBITDA increased to 93%
�� Geographical revenue mix : India-37%; US-12%; UK-11%; Rest of Europe- 12%; Rest of
world-27% with all the markets registering double digit yoy growth. The high growth markets
in FY11 were Rest of world (+68%) and US (+46%) while Rest of Europe (+15%) grew the
least.
�� Total capex declined to 7.3% of net sales in FY11 to Rs. 90.2bn as against 9.6% in FY10;
JLR accounted for 70% of total capex (vs 61% in FY10). The total yoy growth was just 2% but
we expect the growth to be 20% yoy in FY12.
�� The company was able to convert its 93% of EBITDA into the cash profit (before working
capital change and tax payment) as against 89% last year.
�� Working capital at consolidated level rose mainly due to decrease in payables as a % of
sales. Again, as explained above the decrease was due to low level of acceptance in line with
the new strategy of the company. Ignoring that, the working capital days at consolidated level
declined by 11 days thanks mainly to reduction in debtor days.
�� Out of the total capital work in progress of Rs.117.3bn at the end of FY11, Rs.92.1bn was
towards product development costs which will be capitalised gradually as the new products
are launched.
�� Tata Daewoo in FY11 was impacted by financial instability of its sole distributor in its domestic
market South Korea. This forced Tata Motors to start its own sales company and launch Euro
V trucks.
�� Tata Hispano : doubled its sales volume and increased its market share from 8% to 13% in
FY11. But financial performance remains poor as it reports Euro 60m net loss and carries
accumulated losses of Euro 260m.
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