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Diversified luxury at bargain price!
Strong domestic market /JLR global strength is an attractive play
• Tata Motors (TML) is one of the oldest and largest domestic
automotive players in terms of financial size. It is the market
leader in the CV space with ~ 60% market share and remains a
strong domestic PV player
• JLR witnessed a complete turnaround which has led consolidated
profits spiralling ~29x post the acquisition in FY08.However still it
constitutes less than 8% of global luxury car industry which
stands at ~3.2mn units. The luxury car market OEM’s are
expected to add 1mn capacity by CY15E ~3x from CY10 levels.
• On the demand side, if we try to size up the global luxury market,
at present ~36 million affluent households (above $0.1 million in
AuM*) and is expected to grow 1.33x from the present size led by
Asia (ex-Japan) at 1.7x to 5.6 million households. These points
reflect that even as the turnaround has happened, further
possibilities for multiplier growth remain abound for JLR
• On the domestic front, the infrastructure and capex pickup is a
gross necessity. It is expected to witness an investment of ~$1
trillion in the XIIth Five Year Plan. We believe road freight would
grow exponentially due to the laggard state of rail freight leading
to higher CV sales growth on a longer term
• TML remains a unique play in the auto segment, which has strong
diversification benefits as its global presence helps revenues to
remain less affected by any geographical/regional slowdown
Going ahead
• JLR is aggressively working on product development and would
have the most refreshed portfolio in comparison to peers like
BMW,Diamler with ~40 new product launches in next 3-4 years.
• We believe JLR would focus on high value product segments and
not try and match up on scale terms thus providing better
margins and growth.
• On the demand side we understand luxury market to be least
sensitive to business cycles in automobiles providing belief in
long term volume growth with rising affluent households driven
by BRIC nations.
• Domestically TML would gain from higher demand that would
come through with the pick-up of the much needed capex cycle
Valuation
TML witnessed a turnaround in earnings. However, valuations in terms of
multiples still remain docile and have not seen any re-rating till now. We
believe this is on the cards as the strong domestic CV, PV segment
presence along with a luxury play of JLR’s calibre in the price inelastic
segment provides a unique geographical, business diversification.
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