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Tata Motors’ stock price has corrected substantially post the ratings
downgrade of the US and credit concerns in Europe, as markets are
factoring in a challenging environment ahead. The recent correction in
stock prices (c.-30% over the past two months) is in line with the fall in
global luxury OEMs. We recommend investing in the stock in the
current weakness.
Volume outlook: While we have provided a sensitivity analysis at
JLR, wherein we are providing a bear case/recession case volume
outlook scenario (please see the August 25 Note by our US Autos
analyst Himanshu Patel, 2012 Stress Testing), we believe that the
OEM is better positioned to withstand the downturn in this current
cycle given that: i) the soon to be launched ‘Evoque’ will create a
new segment for Land Rover (the product has 18,000 pre bookings
already) ii) China accounts for 15% of volumes (as compared to 5%
earlier) and is likely to witness healthy growth over the near term.
Significant improvement in liquidity in the current cycle: The
OEM has significantly improved its gearing ratios and liquidity
position, driven by healthy cash flow generation at JLR, equity fund
raising and loan refinancing. Gearing ratios at the consolidated entity
have improved considerably to c.1.4x in FY12E (this includes debt
for the financing business). Further at JLR, the OEM raised debt of
GBP1B to refinance debt and fund expansion plans - these are long
tenure notes of 7-10 years duration. Further, JLR has significant cash
on its books - thus, while current debt levels are at GBP 1.3B, cash on
hand is c.GBP 950m.
Capex: In case growth rates were to moderate, we believe that the
OEM will restrict its capex/R&D spend to c.10-12% of sales. While
the management has indicated a capex spend of c.GBP1.5B p.a. over
the next few years, we believe that the programs are flexible.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Motors’ stock price has corrected substantially post the ratings
downgrade of the US and credit concerns in Europe, as markets are
factoring in a challenging environment ahead. The recent correction in
stock prices (c.-30% over the past two months) is in line with the fall in
global luxury OEMs. We recommend investing in the stock in the
current weakness.
Volume outlook: While we have provided a sensitivity analysis at
JLR, wherein we are providing a bear case/recession case volume
outlook scenario (please see the August 25 Note by our US Autos
analyst Himanshu Patel, 2012 Stress Testing), we believe that the
OEM is better positioned to withstand the downturn in this current
cycle given that: i) the soon to be launched ‘Evoque’ will create a
new segment for Land Rover (the product has 18,000 pre bookings
already) ii) China accounts for 15% of volumes (as compared to 5%
earlier) and is likely to witness healthy growth over the near term.
Significant improvement in liquidity in the current cycle: The
OEM has significantly improved its gearing ratios and liquidity
position, driven by healthy cash flow generation at JLR, equity fund
raising and loan refinancing. Gearing ratios at the consolidated entity
have improved considerably to c.1.4x in FY12E (this includes debt
for the financing business). Further at JLR, the OEM raised debt of
GBP1B to refinance debt and fund expansion plans - these are long
tenure notes of 7-10 years duration. Further, JLR has significant cash
on its books - thus, while current debt levels are at GBP 1.3B, cash on
hand is c.GBP 950m.
Capex: In case growth rates were to moderate, we believe that the
OEM will restrict its capex/R&D spend to c.10-12% of sales. While
the management has indicated a capex spend of c.GBP1.5B p.a. over
the next few years, we believe that the programs are flexible.
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