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EARNINGS REVIEW
Tata Motors (TAMO.BO)
Neutral Equity Research
Below Expectations: India operations remain weak; retain Neutral
What surprised us
Tata Motors reported 1QFY2012 net income of Rs20bn, down 1% yoy, lower
than our estimates by 11% and Bloomberg consensus by 8%. Margin
pressures including commodity price increases and overhead resulted in an
EBITDA decline by 164bps yoy. JLR accounted for 80% of net income which
was down 1% yoy despite an 8% yoy growth in volumes. India operations
continue to be weak with net income down 1% and 33% qoq. Key
takeaways: India operations - 1) Decline in market share in passenger car
segment amid rising competition, which management expects to reverse by
focused branding and strengthening the distribution network. 2) Freight rates
have been flat in domestic market on yoy and qoq basis, 3)
Manufacturing/other expenses increased by 4pp, adversely affecting EBITDA
margins. Management expects upward pressure on direct and indirect costs
resulting in subdued margins in the near term. JLR operations: 1) Results were
partially affected by an unfavorable exchange rate environment in 1Q, 2) UK
volumes declined 19% yoy whereas Europe (ex Russia) declined by 7%.
Impact of demand weakness in Europe was offset by yoy volume growth in
North America (up 10%) and China (up 48%).
What to do with the stock
We retain our Neutral rating on the stock and reduce our FY12E
EV/EBITDA-based 12m TP to Rs1,073 (from Rs1,186 earlier) mainly on
lower valuation multiple for the India business amid a worsening demand
and competitive environment. We lower FY12E-13E EPS by 2%-3% on
lower margin assumptions but raise 2014 assuming a cyclical
improvement in that year. Key risks: higher/lower than expected luxury
car demand, macro uncertainty affecting valuation multiples
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Tata Motors (TAMO.BO)
Neutral Equity Research
Below Expectations: India operations remain weak; retain Neutral
What surprised us
Tata Motors reported 1QFY2012 net income of Rs20bn, down 1% yoy, lower
than our estimates by 11% and Bloomberg consensus by 8%. Margin
pressures including commodity price increases and overhead resulted in an
EBITDA decline by 164bps yoy. JLR accounted for 80% of net income which
was down 1% yoy despite an 8% yoy growth in volumes. India operations
continue to be weak with net income down 1% and 33% qoq. Key
takeaways: India operations - 1) Decline in market share in passenger car
segment amid rising competition, which management expects to reverse by
focused branding and strengthening the distribution network. 2) Freight rates
have been flat in domestic market on yoy and qoq basis, 3)
Manufacturing/other expenses increased by 4pp, adversely affecting EBITDA
margins. Management expects upward pressure on direct and indirect costs
resulting in subdued margins in the near term. JLR operations: 1) Results were
partially affected by an unfavorable exchange rate environment in 1Q, 2) UK
volumes declined 19% yoy whereas Europe (ex Russia) declined by 7%.
Impact of demand weakness in Europe was offset by yoy volume growth in
North America (up 10%) and China (up 48%).
What to do with the stock
We retain our Neutral rating on the stock and reduce our FY12E
EV/EBITDA-based 12m TP to Rs1,073 (from Rs1,186 earlier) mainly on
lower valuation multiple for the India business amid a worsening demand
and competitive environment. We lower FY12E-13E EPS by 2%-3% on
lower margin assumptions but raise 2014 assuming a cyclical
improvement in that year. Key risks: higher/lower than expected luxury
car demand, macro uncertainty affecting valuation multiples
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