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UBS Investment Research
Tata Motors Ltd.
O utlook remains tough, reiterate Sell
Event: Risk-Reward still not favourable; cut PT to Rs 770 (from Rs 920)
We maintain our anti-consensus Sell call on Tata Motors despite 25% decline in
the stock since mid-June. We believe market continues remain sanguine on Evoque
launch driven growth for JLR. We believe potential slowdown in developed
markets and continued sluggishness in the domestic MHCV business remain the
key risks. We continue to see more downside risk to JLR margin est.
Impact: Reduce FY12E EPS by 5%; volume growth outlook remains weak
We reduce our volume growth for JLR from 14% to 12% for FY12E given weak
trends for Jaguar. We still expect 8% volume growth for JLR in FY13 driven by
Evoque launch. We expect domestic MHCV growth to remain weak in H2FY12 as
we expect domestic growth to slow further in H2FY12.
Action: Maintain Sell; margins to remain under pressure
We expect domestic business margins to remain under pressure as focus remains
on aggressive marketing and promotions to improve PV sales rather than cut back
on costs. At JLR, mgmt. expects margins to have a downward bias due to
introduction of Evoque. We believe EBITDA margin at JLR to remain under
pressure, as we believe operating leverage effect has largely been played out and
incentives are continuing to increase.
Valuation: Reduce PT to Rs 770 as we cut JLR multiple on weaker outlook
We value the domestic business (and other subs) at 8x FY13E EV/EBITDA. We
now value JLR at 3x (from 4x previously) FY13E EV/EBITDA given weaker
economic growth outlook. We adjust our EBITDA for R&D capitalization.
Tata Motors Ltd.
Tata Motors manufactures and sells commercial vehicles, utility vehicles, and
passenger cars in India. Tata Motors is the dominant player in the Indian
commercial vehicles space, with close to a 60% market share in both the
medium and heavy commercial vehicle markets in India as well as light
commercial vehicles. Tata Motors entered the passenger car market in 1998 with
the Indica model. In 2003, it released the mid-size sedan, Indigo, followed by
the Nano in 2009. In June 2008, Tata Motors acquired Jaguar and Land Rover
from Ford. The Tata Group owns 35% of Tata Motors.
Statement of Risk
Key risks for Tata Motors remain slowdown in CV demand in India, decline in
sales of Jaguar and Land Rover and inability to refinance debt on account of
acquisitions. Decline in demand for company's cars and LCV's remain the other
key risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Tata Motors Ltd.
O utlook remains tough, reiterate Sell
Event: Risk-Reward still not favourable; cut PT to Rs 770 (from Rs 920)
We maintain our anti-consensus Sell call on Tata Motors despite 25% decline in
the stock since mid-June. We believe market continues remain sanguine on Evoque
launch driven growth for JLR. We believe potential slowdown in developed
markets and continued sluggishness in the domestic MHCV business remain the
key risks. We continue to see more downside risk to JLR margin est.
Impact: Reduce FY12E EPS by 5%; volume growth outlook remains weak
We reduce our volume growth for JLR from 14% to 12% for FY12E given weak
trends for Jaguar. We still expect 8% volume growth for JLR in FY13 driven by
Evoque launch. We expect domestic MHCV growth to remain weak in H2FY12 as
we expect domestic growth to slow further in H2FY12.
Action: Maintain Sell; margins to remain under pressure
We expect domestic business margins to remain under pressure as focus remains
on aggressive marketing and promotions to improve PV sales rather than cut back
on costs. At JLR, mgmt. expects margins to have a downward bias due to
introduction of Evoque. We believe EBITDA margin at JLR to remain under
pressure, as we believe operating leverage effect has largely been played out and
incentives are continuing to increase.
Valuation: Reduce PT to Rs 770 as we cut JLR multiple on weaker outlook
We value the domestic business (and other subs) at 8x FY13E EV/EBITDA. We
now value JLR at 3x (from 4x previously) FY13E EV/EBITDA given weaker
economic growth outlook. We adjust our EBITDA for R&D capitalization.
Tata Motors Ltd.
Tata Motors manufactures and sells commercial vehicles, utility vehicles, and
passenger cars in India. Tata Motors is the dominant player in the Indian
commercial vehicles space, with close to a 60% market share in both the
medium and heavy commercial vehicle markets in India as well as light
commercial vehicles. Tata Motors entered the passenger car market in 1998 with
the Indica model. In 2003, it released the mid-size sedan, Indigo, followed by
the Nano in 2009. In June 2008, Tata Motors acquired Jaguar and Land Rover
from Ford. The Tata Group owns 35% of Tata Motors.
Statement of Risk
Key risks for Tata Motors remain slowdown in CV demand in India, decline in
sales of Jaguar and Land Rover and inability to refinance debt on account of
acquisitions. Decline in demand for company's cars and LCV's remain the other
key risk.
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