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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● In our view, Tata Motors, post its recent rally (the stock has been
up 18% over the past three days), is trading at its fair value and
current valuations are by no means inexpensive.
● JLR currently trades at implied FY13 EV/EBITDA of 2.8x,
significantly higher than BMWís CY12 multiple of 1.6x despite
BMWís superior fundamentalsóbetter brand franchise, >5x
volumes, ~700 bp higher margins, net cash of US$10 bn.
● Low multiples for premium car markers globally are a reflection of
investor concerns on the sustainability of higher margins in China
and low cash flow generation given the high spend on powertrain
development to comply with tough global emission norms and
product development to maintain the premium image.
● Given the fact that the capex cycle has not yet picked up, there
could be a downside risk to our 15% M&HCV volume growth
estimate in FY13. Hence, we believe it is not prudent to give a
higher than mid-cycle multiple of 7x to the domestic business
which is also its average from 2002 to 2007.
JLR vs BMW, which one would you buy? Despite its far superior
fundamentals, BMW trades at 1.6x CY12E EV/EBITDA compared with
2.8x FY13E EV/EBITDA for JLR. While on EV/sales, BMW and JLR
trade at similar multiples, we reckon given its higher level of
profitability BMW should trade higher. We acknowledge the fact that
BMW has a large financing book, which could be under stress given
the macro situation in Europe but even after assuming a 50%
writedown on book BMW trades at 2.2x EV/EBITDA, lower than JLR.
Better JLR August volumes not a positive surprise. The stock has
reacted very positively to August volume numbers but we reckon
~30% YoY growth is a one-off on a lower base. Usually August is a
weak month for despatches given that it is vacation season in the UK.
However, despatches were higher this August as the company has
been producing the Evoque since 4 July, but despatched vehicles in
August as it goes on sale from 8 September in the UK. Given that it
goes on sale in most major markets in the next two to three months,
JLR volumes should remain robust for the next few months, but with a
higher base YoY growth should come down
Currency could provide positive surprise to estimates. In our
5 September 2011 initiation report on Tata Motors, we highlighted
the impact of GBP depreciation against the USD in FY11 on JLR's
improved realisations. We note the recent sharp appreciation of the
USD against the GBP (3% in September) is positive for the company
and if current levels of the currency sustain it could provide 150 bp
upside to our JLR margin estimates and would increase our value of
JLR by Rs12/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● In our view, Tata Motors, post its recent rally (the stock has been
up 18% over the past three days), is trading at its fair value and
current valuations are by no means inexpensive.
● JLR currently trades at implied FY13 EV/EBITDA of 2.8x,
significantly higher than BMWís CY12 multiple of 1.6x despite
BMWís superior fundamentalsóbetter brand franchise, >5x
volumes, ~700 bp higher margins, net cash of US$10 bn.
● Low multiples for premium car markers globally are a reflection of
investor concerns on the sustainability of higher margins in China
and low cash flow generation given the high spend on powertrain
development to comply with tough global emission norms and
product development to maintain the premium image.
● Given the fact that the capex cycle has not yet picked up, there
could be a downside risk to our 15% M&HCV volume growth
estimate in FY13. Hence, we believe it is not prudent to give a
higher than mid-cycle multiple of 7x to the domestic business
which is also its average from 2002 to 2007.
JLR vs BMW, which one would you buy? Despite its far superior
fundamentals, BMW trades at 1.6x CY12E EV/EBITDA compared with
2.8x FY13E EV/EBITDA for JLR. While on EV/sales, BMW and JLR
trade at similar multiples, we reckon given its higher level of
profitability BMW should trade higher. We acknowledge the fact that
BMW has a large financing book, which could be under stress given
the macro situation in Europe but even after assuming a 50%
writedown on book BMW trades at 2.2x EV/EBITDA, lower than JLR.
Better JLR August volumes not a positive surprise. The stock has
reacted very positively to August volume numbers but we reckon
~30% YoY growth is a one-off on a lower base. Usually August is a
weak month for despatches given that it is vacation season in the UK.
However, despatches were higher this August as the company has
been producing the Evoque since 4 July, but despatched vehicles in
August as it goes on sale from 8 September in the UK. Given that it
goes on sale in most major markets in the next two to three months,
JLR volumes should remain robust for the next few months, but with a
higher base YoY growth should come down
Currency could provide positive surprise to estimates. In our
5 September 2011 initiation report on Tata Motors, we highlighted
the impact of GBP depreciation against the USD in FY11 on JLR's
improved realisations. We note the recent sharp appreciation of the
USD against the GBP (3% in September) is positive for the company
and if current levels of the currency sustain it could provide 150 bp
upside to our JLR margin estimates and would increase our value of
JLR by Rs12/share.
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