Tata Motors JLR - exciting product pipeline:: Macquarie Research,

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Tata Motors
JLR - exciting product pipeline
Event
 Tata Motors hosted a conference call to discuss the financial performance
and outlook of Jaguar Land Rover (JLR) business. Our positive view on the
stock was re-affirmed as we got better clarity into the company’s plans to
drive growth and manage profitability. We re-iterate our Outperform on TTMT.
Impact
 2012MY product launches/upgrades to expand the addressable market.
The new XF, with a 2.2L 4-cylinder diesel variant, is likely to double the
addressable market, as this will be the first Jaguar with CO2 emissions
below 150g/km, a crucial cut-off point for fleet buyers. New XF will start
retailing in UK in this month and in other markets by Sep 2011.
In China and some other markets, the XJ has been launched with the
3.0L V6 engines. We view this as an important step because of the high
taxation on larger engines in China. We believe the price of an XJ V6
would be half of an XJ V8 that retails around £200,000.
Evoque, which is the smallest and the most fuel-efficient Range Rover,
will widen the target market. The initial response to this new RR has been
very strong (>20k pre-bookings). It will start retailing in September.
 Company expects stronger growth in 2HFY12. Management believes the
launch of XF and Evoque will boost the volumes from August. They believe
26% decline in Jaguar volumes in 1QFY12 was partly due to the impending
launch of new XF (~60% of Jaguar volumes). Company is confident that the
growth in emerging markets will offset any decline in UK/Europe. JLR plans to
double dealerships in China by year end, which will boost growth in China.
 Volume growth to offset cost pressures. We believe the cost pressures on
account of higher commodity prices (management est. £100mn) and addition
of 2,200 temporary workers (at 80% of regular wage) will be offset by volume
growth. 1QFY12 margin will be affected, though, as workers were hired ahead
of the start of production. Company believes the increase in discounts on
Jaguar in US is aimed to clear inventories before the new XF launch and the
discounts on Land Rovers have not increased. Management also clarified that
the margins on Evoque will be similar to existing RR products.
Earnings and target price revision
 No change.
Price catalyst
 12-month price target: Rs1,465.00 based on a Sum of Parts methodology.
 Catalyst: Monthly sales numbers and customer response to the new products.
Action and recommendation
 Reaffirm Outperform. We remain positive on the JLR business in terms of
both volume potential and margins. TTMT is trading 5.0x FY12E EV/EBITDA.