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Tata Motors (TTMT)
Automobiles
JLR performance overriding weak domestic business. JLR’s volume growth is likely
to remain strong, aided by new model launches and strong growth in emerging
markets (China, Russia, Latin America and Middle East), which is likely to mask weak
domestic business. We maintain our ADD rating on the stock due to strong volume
growth in JLR business. We have revised our target price upwards to Rs195 (from Rs180
earlier) due to an increase in our JLR earnings estimates.
JLR volume growth is expected to remain strong, lifted by emerging markets
Retail volumes of JLR in 1HFY12 have increased 12% yoy driven by strong growth in China, Russia
and other emerging markets (+41% yoy) while developed markets have reported a 2% yoy decline
in JLR volumes. China, Russia and other emerging markets now form 40% of JLR volumes while
developed markets (US and Europe) form 60% of JLR volumes. We expect JLR volumes to increase
13% yoy in FY2012E and 9% yoy in FY2013E. JLR volume growth would also be supported by
smaller 4 cylinder 2.2 litre Jaguar XF and smaller Land Rover Evoque in our view. Jaguar XF and
Evoque would form 28% of total volumes in FY2012E of JLR and increase to 32% in FY2013E.
However, we expect EBITDA margins to decline from current levels by 70 bps in FY2013E due to
(1) higher incentives and marketing spends due to weak growth in developed markets and
(2) higher contribution of lower priced models in the product mix. However, positive geographical
mix and higher Land Rover volumes in the product mix is likely to partially offset the impact on
EBITDA margins.
Domestic business is impacted by a deterioration in profitability of passenger car business
Tata Motor’s commercial vehicle business has maintained a strong growth in volumes despite
slowdown in the industrial production but EBITDA margins of the domestic business have declined
significantly due to higher discounts/marketing spends/lower volumes in the passenger car
business. We believe the domestic business will continue to remain under pressure as we expect
Tata Motors to lose market share in the passenger car business and expect moderate growth in the
medium and heavy commercial vehicle segment.
We revise our earnings estimates by 5-11% over FY2012-2013E
We have increased our consolidated earnings estimates for Tata Motors by 5-11% over FY2012-
2013E factoring in – 6-15% increase in JLR earnings estimates on higher volume growth while we
have revised our standalone earnings estimates by 4-7% over the same period. We have increased
our target price to Rs195 (from Rs180 earlier) based on an increase in our earnings estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Motors (TTMT)
Automobiles
JLR performance overriding weak domestic business. JLR’s volume growth is likely
to remain strong, aided by new model launches and strong growth in emerging
markets (China, Russia, Latin America and Middle East), which is likely to mask weak
domestic business. We maintain our ADD rating on the stock due to strong volume
growth in JLR business. We have revised our target price upwards to Rs195 (from Rs180
earlier) due to an increase in our JLR earnings estimates.
JLR volume growth is expected to remain strong, lifted by emerging markets
Retail volumes of JLR in 1HFY12 have increased 12% yoy driven by strong growth in China, Russia
and other emerging markets (+41% yoy) while developed markets have reported a 2% yoy decline
in JLR volumes. China, Russia and other emerging markets now form 40% of JLR volumes while
developed markets (US and Europe) form 60% of JLR volumes. We expect JLR volumes to increase
13% yoy in FY2012E and 9% yoy in FY2013E. JLR volume growth would also be supported by
smaller 4 cylinder 2.2 litre Jaguar XF and smaller Land Rover Evoque in our view. Jaguar XF and
Evoque would form 28% of total volumes in FY2012E of JLR and increase to 32% in FY2013E.
However, we expect EBITDA margins to decline from current levels by 70 bps in FY2013E due to
(1) higher incentives and marketing spends due to weak growth in developed markets and
(2) higher contribution of lower priced models in the product mix. However, positive geographical
mix and higher Land Rover volumes in the product mix is likely to partially offset the impact on
EBITDA margins.
Domestic business is impacted by a deterioration in profitability of passenger car business
Tata Motor’s commercial vehicle business has maintained a strong growth in volumes despite
slowdown in the industrial production but EBITDA margins of the domestic business have declined
significantly due to higher discounts/marketing spends/lower volumes in the passenger car
business. We believe the domestic business will continue to remain under pressure as we expect
Tata Motors to lose market share in the passenger car business and expect moderate growth in the
medium and heavy commercial vehicle segment.
We revise our earnings estimates by 5-11% over FY2012-2013E
We have increased our consolidated earnings estimates for Tata Motors by 5-11% over FY2012-
2013E factoring in – 6-15% increase in JLR earnings estimates on higher volume growth while we
have revised our standalone earnings estimates by 4-7% over the same period. We have increased
our target price to Rs195 (from Rs180 earlier) based on an increase in our earnings estimates.
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