Tata Motors-- Keep the faith :: Macquarie Research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Tata Motors
Keep the faith
Event
 TTMT reported 1QFY12 consolidated PAT of Rs20bn (+0.5%YoY), which was
inline with our estimates but lower than the consensus expectations. Jaguar
Land Rover (JLR) revenues increased 20% and EBITDA increased 17%.
 We have cut our FY13E JLR volumes by ~9% due to the expectations of a
slower economic growth in the US, UK and Europe (60% of JLR sales). We
have cut our target price to Rs1,250 from Rs1,465. Tata Motors trade at 6.2x
FY13E PER and 4.2x EV/EBITDA. We re-iterate Outperform.
Impact
 Favourable mix drives strong growth in JLR. JLR reported sales growth of
20%, driven by 5% growth in volumes and 14% rise in realisations. Stronger
growth in the higher priced products and favourable geographical mix led to
14% growth in realisations. Retail volume growth was 7%, while wholesale
volume growth was 5%, which indicates reduction in channel inventory.
 New products to drive growth for JLR. Although the global economic
concerns have increased due to the recent events in the developed world, we
remain confident of our FY12E volume estimates for JLR. We believe the
launch of XF and Evoque will boost the volumes in 2HFY12. The growth in
emerging markets will offset any decline in US and UK/Europe, in our view.
 Cost pressure and growth moderation in domestic business. Domestic
business reported net sales and profit of Rs119bn (↑14% YoY) and Rs4.01bn
(↑1.4% YoY) in 1QFY12 respectively. EBITDA margin contraction of 290bp
was largely due to raw material (RM) cost pressure. Passenger vehicle sales
declined 11%, primarily due to the competition in the car segment.
 Margins pressure to continue in the near-term. JLR reported EBITDA of
GBP408mn with a margin of 15.1% (↓30bp YoY). A less favourable foreign
exchange environment led to YoY EBITDA margin decline. We believe the
cost pressures on account of higher commodity prices and addition of 2,200
temporary workers will continue to weigh-on the margins. 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.
Earnings and target price revision
 We have cut our FY13E JLR volumes by ~9%. Accordingly, we have cut our
target price to Rs1,250 from Rs1,465.
Price catalyst
 12-month price target: Rs1,250.00 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 JLR business in terms of both
volume potential and margins. TTMT is trading at 4.2x FY12E EV/EBITDA.