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Tata Motors (TTM)
Alert: Takeaways from Investor Meetings at New York and Boston
What's New? — Citigroup hosted Tata Motors and Jaguar Land Rover
managements at New York and Boston for investor meetings. Key takeaways
below:
JLR volume outlook is healthy — Mgmt is cautiously optimistic on JLR volumes,
in the backdrop of current global macro environment. While volumes in the UK and
EU markets have seen slight moderation, the overall demand scenario appears
stable in the near term. China sales have shown encouraging growth and should
boost volumes as well as profitability. Mgmt noted that the response to the newly
launched Evoque is encouraging (around 25,000 orders) and should mitigate
volume losses in EU. Mgmt also stated that while JLR could explore India for design
engineering, sourcing of auto components, IT outsourcing etc., the UK will remain
the primary manufacturing geography.
Domestic CV demand remains healthy… — Despite a slowdown in industrial
activity and higher interest rates, CV demand scenario in India appears healthy, for
now. Specifically, smaller commercial vehicles have reported a very strong growth
(we believe, driven by the Ace and its variants). While growth momentum has
decelerated when compared with the trends witnessed in FY11, the CV segment
has been more resilient to the adverse macro than passenger vehicles. Customers
have been able to absorb price hikes as well as costlier vehicle finance. That said,
cut sin liquidity by banks could dampen demand in the CV segment. Mgmt also
acknowledged growing competition in the segment, alluding to the setting up of
Bharat Benz in India by Daimler. In the bus segment, new orders have subsided
from STUs as well as private operators. However, mgmt does not plan to increase
discounts to buoy sales in the domestic market.
...while PV volume deceleration is a concern — Mgmt expressed concerns on
demand in the domestic PV segment, where TAMO's market share has reduced to
10-12% from 16-17%. This segment has also been highly impacted by interest rate
hikes. Specifically on the Nano, TAMO has introduced additional protective
measures to address issues of smoke / fire in the car and expect sales volumes to
pick up from the current 5,000-7,000. In order to revive sales, the company plans to
increase brand publicity & promotion while expanding the dealership network, in the
short term. Over the longer term, mgmt aims to increase frequency of new model
launches, enter new segments and improve overall product quality.
TAMO to increase domestic capex — Mgmt believes that the domestic CV
business has been underinvested in the past and has thus increased capex. While
expecting the capex to be funded through internal accruals, mgmt could curtail
capital expenditure if macro environment deteriorates further
Tata Motors
Valuation
Our $4.791 target price for Tata Motors is based on a sum-of-the-parts valuation. We
value Tata Motors' core business at $2.58 per ADR (on a ADR count of 659 million
ADRs), based on 7x Mar13E EV/EBITDA. We value subsidiaries and investments at
$0.36. We attribute around $1.85 per ADR to JLR - we value this at 3x Mar13E
EV/EBITDA, which equates to around $2.52 per ADR and then deduct the total net
debt which amounts to around $0.67 per ADR. At our target price, TTMT would
trade at a consolidated price-to-book value of 2.8x / 2.1x (FY12/13E), which
appears reasonable when juxtaposed against ROEs of 32%, 28% in FY12E/13E
respectively. On a P/E basis, the ADR would trade at around 8.6x and 7.5x
FY12E/13E EPADR.
Risks
Our quantitative risk rating system, which tracks 260-day historical ADR price
volatility, suggests a Low Risk rating for Tata Motors ADRs. We assign a Medium
Risk flag, as a) JLR is exposed to risks of a global macro slowdown, b) competitive
intensity from JLR's peer group is increasing, c) cyclical risks within the CV
business are increasing. The key downside risks to our estimates that could prevent
the ADRs from reaching our target price emanate from: a) Weaker-than-forecast
demand conditions for luxury cars and SUVs in Europe and the U.S. Given the high
leverage of this business to both volumes and EPADR, the key risk is if JLR
volumes are lower than anticipated; b) Our CV forecasts are predicated on our
economist Rohini Malkani's view that industrial growth should rebound from
2HFY12. c) We assume that the credit and liquidity environment will remain stable.
A credit 'crunch' could impact consumer confidence and possibly JLR's sales
(especially in developed markets). Given TTMT's fairly leveraged balance sheet,
this is a risk. Key upside risks are as follows: a) Better-than-forecast growth in the
Range Rover / Land Rover product portfolio, b) a turnaround of the passenger car
business in India, and c) a sharp upward climb in the CV cycle in India.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Motors (TTM)
Alert: Takeaways from Investor Meetings at New York and Boston
What's New? — Citigroup hosted Tata Motors and Jaguar Land Rover
managements at New York and Boston for investor meetings. Key takeaways
below:
JLR volume outlook is healthy — Mgmt is cautiously optimistic on JLR volumes,
in the backdrop of current global macro environment. While volumes in the UK and
EU markets have seen slight moderation, the overall demand scenario appears
stable in the near term. China sales have shown encouraging growth and should
boost volumes as well as profitability. Mgmt noted that the response to the newly
launched Evoque is encouraging (around 25,000 orders) and should mitigate
volume losses in EU. Mgmt also stated that while JLR could explore India for design
engineering, sourcing of auto components, IT outsourcing etc., the UK will remain
the primary manufacturing geography.
Domestic CV demand remains healthy… — Despite a slowdown in industrial
activity and higher interest rates, CV demand scenario in India appears healthy, for
now. Specifically, smaller commercial vehicles have reported a very strong growth
(we believe, driven by the Ace and its variants). While growth momentum has
decelerated when compared with the trends witnessed in FY11, the CV segment
has been more resilient to the adverse macro than passenger vehicles. Customers
have been able to absorb price hikes as well as costlier vehicle finance. That said,
cut sin liquidity by banks could dampen demand in the CV segment. Mgmt also
acknowledged growing competition in the segment, alluding to the setting up of
Bharat Benz in India by Daimler. In the bus segment, new orders have subsided
from STUs as well as private operators. However, mgmt does not plan to increase
discounts to buoy sales in the domestic market.
...while PV volume deceleration is a concern — Mgmt expressed concerns on
demand in the domestic PV segment, where TAMO's market share has reduced to
10-12% from 16-17%. This segment has also been highly impacted by interest rate
hikes. Specifically on the Nano, TAMO has introduced additional protective
measures to address issues of smoke / fire in the car and expect sales volumes to
pick up from the current 5,000-7,000. In order to revive sales, the company plans to
increase brand publicity & promotion while expanding the dealership network, in the
short term. Over the longer term, mgmt aims to increase frequency of new model
launches, enter new segments and improve overall product quality.
TAMO to increase domestic capex — Mgmt believes that the domestic CV
business has been underinvested in the past and has thus increased capex. While
expecting the capex to be funded through internal accruals, mgmt could curtail
capital expenditure if macro environment deteriorates further
Tata Motors
Valuation
Our $4.791 target price for Tata Motors is based on a sum-of-the-parts valuation. We
value Tata Motors' core business at $2.58 per ADR (on a ADR count of 659 million
ADRs), based on 7x Mar13E EV/EBITDA. We value subsidiaries and investments at
$0.36. We attribute around $1.85 per ADR to JLR - we value this at 3x Mar13E
EV/EBITDA, which equates to around $2.52 per ADR and then deduct the total net
debt which amounts to around $0.67 per ADR. At our target price, TTMT would
trade at a consolidated price-to-book value of 2.8x / 2.1x (FY12/13E), which
appears reasonable when juxtaposed against ROEs of 32%, 28% in FY12E/13E
respectively. On a P/E basis, the ADR would trade at around 8.6x and 7.5x
FY12E/13E EPADR.
Risks
Our quantitative risk rating system, which tracks 260-day historical ADR price
volatility, suggests a Low Risk rating for Tata Motors ADRs. We assign a Medium
Risk flag, as a) JLR is exposed to risks of a global macro slowdown, b) competitive
intensity from JLR's peer group is increasing, c) cyclical risks within the CV
business are increasing. The key downside risks to our estimates that could prevent
the ADRs from reaching our target price emanate from: a) Weaker-than-forecast
demand conditions for luxury cars and SUVs in Europe and the U.S. Given the high
leverage of this business to both volumes and EPADR, the key risk is if JLR
volumes are lower than anticipated; b) Our CV forecasts are predicated on our
economist Rohini Malkani's view that industrial growth should rebound from
2HFY12. c) We assume that the credit and liquidity environment will remain stable.
A credit 'crunch' could impact consumer confidence and possibly JLR's sales
(especially in developed markets). Given TTMT's fairly leveraged balance sheet,
this is a risk. Key upside risks are as follows: a) Better-than-forecast growth in the
Range Rover / Land Rover product portfolio, b) a turnaround of the passenger car
business in India, and c) a sharp upward climb in the CV cycle in India.
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