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TATA Motors Ltd (TML) is India's largest diversified automobile company with ~7 decades of experience in original equipment
manufacturing (OEM). The company has its presence across the world through its subsidiaries and associate companies.
TML is the first company to develop India's fully indigenous Passenger Car (Indica), Sport Utility Vehicle, LCV-Mini Truck
(ACE) and TATA Nano, the peoples car.
TML is the 18th largest automobile company in the world based on volume. In 2008, the company acquired two iconic British
brands JLR (Jaguar and Land Rover) for US$2.3billion. To have a deeper product penetration and market share in China (the
world's 4th largest luxury car market), JLR recently formed a JV with Chery Automobile.
The company is strategically placed across all the segments of automobile.
With high competition and margin pressure in a price sensitive market in India,
we expect future revenue and profitability of TML to be driven by JLR which
is riding on high volume growth across the markets. We initiate coverage on
the stock with BUY rating.
JLR steering the future growth
JLR contributes nearly two-third of consolidated sales (including its subsidiaries
and associates companies) of TML. JLR volume grew 25 percent to 2.4 lakh
during FY11 from 1.94 lakh in FY10.
During the first 10 months of FY12, TML achieved a volume growth of 2.45
lakh against a total sales volume of 2.4 lakh last year. In Q3FY12, JLR posted
42/36 percent growth in net sales/profit to 3,749/639 million GBP. Sales
realization grew 3.5 percent to 43,430 GBP per vehicle.
The 9M FY12 sales and PAT clocked 31 and 1.5 percent to 9367 and 785
million GBP, whereas realization grew 6.5 percent to 42,300 GBP. The company
has maintained its EBITDA margin at 15-17 percent, whereas net margin is stable
at 8-10 percent. With the sales contribution of ~Rs74,000crore, JLR has ~63
percent shares of consolidated TML's revenue during 9M FY12.
China is now the third largest destination after UK and North America,
contributing ~16% of total volume during Q3FY12.
Net margin is likely to stabilized at the current level due to erosion of tax shield
from the UK operation, that is, tax rate has jumped 20 percentage points to 23
percent during Q3FY12, which is inching towards full tax rate at par with other
players.
Since the market is not concentrated in one particular geography, We expect high
volume growth going forward. China has emerged as one of the leading markets
outside Europe and North America where the product realization is better than
other regions.
Currently, China accounts for ~13 percent of global luxury car volume and is
expected to grow to over 20 percent in the next 5-8 years, which will add over
2 million volume business for JLR.
TML is also strategically looking at other markets like South Africa, Australia, Brazil,
India and Russia for balancing its regional presence.
In addition, JLR is planning to set up manufacturing base in world's largest automobile
market - China to penetrate its luxury SUV and Sedan in one of the fastest growing
market and has recently formed a JV with Chery Automobile.
We expect JLR's net sales and profit to grow at 28 and 21 percent & MARGIN (MN GBP)
CAGR to 20,536 and 1,810 million GBP between 2011A and
2014E, respectively. The sales growth is primarily driven by
robust volume growth from China, Russia, Middle East and other
developed markets. JLR is planning to launch over 30 product
and its derivatives including engine over the next 3-5 years to
compete with global players.
We also expect market share of JLR in China to grow further led
by the recent announcement of JV with Chinese partners Chery
Automobile.
We expect EBITDA and Net margin of JLR to remain at the
current level of 13 and 9 percent, respectively, and interest cost
to decline due to debt repayment.
Forayed into luxury bus segment through JV with Hispano Carrocera
The company has entered into luxury bus segment with the launch of TATA Divo and
already sold over 20 buses. India has an annual demand of 700-800 intercity luxury buses,
which is dominated by Volvo and Mercedes with Volvo's over 50 percent market share.
TML plans to sell 150 luxury Divo buses during the first years and is expected to be a
leader with over 50 percent market share by 2015. In addition, TML also plans to
launch multi-axle Divo by 2014.
The current price of Divo is Rs60 Lakh ex-showroom in Thane which is lower than
other luxury buses offered by existing players. Also, features like on board refrigerator,
better fuel efficiency would further raise its attractiveness within the offering.
Positive growth in Utility, but negative growth outlook
for car segment
We expect a positive growth in Utility led by its leadership position
and new launches. The company has recently launched Sumo Gold
the redesigned SUV in February 2012 and is plans to sell 5,000
units per month. The utility segment clocked 28 percent growth
during the first 10 months of FY12 compared to same period
last year. We are expecting 10-12 percent growth in utility segment
for FY13 and FY14.
The passenger car segment is expected to registered negative
growth during the next 2 years, it has already shown a decline of
7 percent during the current financial year. TML has lost over 4
percent market share since the last 3-4 years due to overcrowded
car market. In addition, it has just three products - Nano, Indica
and Indigo, which is becoming difficult to compete.
Valuation
At the CMP of Rs275, the stock is trading at 66.0x/80.1x of its FY12E/FY13E earnings
respectively, whereas on P/BV, it is trading at 4.3x/4.2x respectively.
We have used the sum of the parts (SOTP) valuation to arrive at the target price of
TML, which are divided into 5 sub-segments - TML standalone, JLR, TFL, TATA
Daewoo and TATA Tech. We have valued TML standalone based P/E multiple, whereas
JLR is valued at EV/EBITDA basis benchmarked with valuations of BMW and Daimler.
Others are valued on P/BV basis.
Currently, BMW and Daimler are trading at 5.6x and 9.2x on EV/EBITDA basis,
respectively. We have assigned a multiple of 4.5x to JLR, a 20 percent discount to
BMW's multiple to arrive at value of Rs231 per share. For TML standalone, based on
its historical and rolling forward multiple after taking into account the standard
deviation, we have given 37.9x to arrive at a value per share of Rs142.
TATA Daewoo, TFL and Tata Tech are valued at Rs3.4, 6.8 and 2.3, respectively. All
put together, we have arrived at a fair value of Rs386, which provides an upside potential
of ~40 percent from the current level.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TATA Motors Ltd (TML) is India's largest diversified automobile company with ~7 decades of experience in original equipment
manufacturing (OEM). The company has its presence across the world through its subsidiaries and associate companies.
TML is the first company to develop India's fully indigenous Passenger Car (Indica), Sport Utility Vehicle, LCV-Mini Truck
(ACE) and TATA Nano, the peoples car.
TML is the 18th largest automobile company in the world based on volume. In 2008, the company acquired two iconic British
brands JLR (Jaguar and Land Rover) for US$2.3billion. To have a deeper product penetration and market share in China (the
world's 4th largest luxury car market), JLR recently formed a JV with Chery Automobile.
The company is strategically placed across all the segments of automobile.
With high competition and margin pressure in a price sensitive market in India,
we expect future revenue and profitability of TML to be driven by JLR which
is riding on high volume growth across the markets. We initiate coverage on
the stock with BUY rating.
JLR steering the future growth
JLR contributes nearly two-third of consolidated sales (including its subsidiaries
and associates companies) of TML. JLR volume grew 25 percent to 2.4 lakh
during FY11 from 1.94 lakh in FY10.
During the first 10 months of FY12, TML achieved a volume growth of 2.45
lakh against a total sales volume of 2.4 lakh last year. In Q3FY12, JLR posted
42/36 percent growth in net sales/profit to 3,749/639 million GBP. Sales
realization grew 3.5 percent to 43,430 GBP per vehicle.
The 9M FY12 sales and PAT clocked 31 and 1.5 percent to 9367 and 785
million GBP, whereas realization grew 6.5 percent to 42,300 GBP. The company
has maintained its EBITDA margin at 15-17 percent, whereas net margin is stable
at 8-10 percent. With the sales contribution of ~Rs74,000crore, JLR has ~63
percent shares of consolidated TML's revenue during 9M FY12.
China is now the third largest destination after UK and North America,
contributing ~16% of total volume during Q3FY12.
Net margin is likely to stabilized at the current level due to erosion of tax shield
from the UK operation, that is, tax rate has jumped 20 percentage points to 23
percent during Q3FY12, which is inching towards full tax rate at par with other
players.
Since the market is not concentrated in one particular geography, We expect high
volume growth going forward. China has emerged as one of the leading markets
outside Europe and North America where the product realization is better than
other regions.
Currently, China accounts for ~13 percent of global luxury car volume and is
expected to grow to over 20 percent in the next 5-8 years, which will add over
2 million volume business for JLR.
TML is also strategically looking at other markets like South Africa, Australia, Brazil,
India and Russia for balancing its regional presence.
In addition, JLR is planning to set up manufacturing base in world's largest automobile
market - China to penetrate its luxury SUV and Sedan in one of the fastest growing
market and has recently formed a JV with Chery Automobile.
We expect JLR's net sales and profit to grow at 28 and 21 percent & MARGIN (MN GBP)
CAGR to 20,536 and 1,810 million GBP between 2011A and
2014E, respectively. The sales growth is primarily driven by
robust volume growth from China, Russia, Middle East and other
developed markets. JLR is planning to launch over 30 product
and its derivatives including engine over the next 3-5 years to
compete with global players.
We also expect market share of JLR in China to grow further led
by the recent announcement of JV with Chinese partners Chery
Automobile.
We expect EBITDA and Net margin of JLR to remain at the
current level of 13 and 9 percent, respectively, and interest cost
to decline due to debt repayment.
Forayed into luxury bus segment through JV with Hispano Carrocera
The company has entered into luxury bus segment with the launch of TATA Divo and
already sold over 20 buses. India has an annual demand of 700-800 intercity luxury buses,
which is dominated by Volvo and Mercedes with Volvo's over 50 percent market share.
TML plans to sell 150 luxury Divo buses during the first years and is expected to be a
leader with over 50 percent market share by 2015. In addition, TML also plans to
launch multi-axle Divo by 2014.
The current price of Divo is Rs60 Lakh ex-showroom in Thane which is lower than
other luxury buses offered by existing players. Also, features like on board refrigerator,
better fuel efficiency would further raise its attractiveness within the offering.
Positive growth in Utility, but negative growth outlook
for car segment
We expect a positive growth in Utility led by its leadership position
and new launches. The company has recently launched Sumo Gold
the redesigned SUV in February 2012 and is plans to sell 5,000
units per month. The utility segment clocked 28 percent growth
during the first 10 months of FY12 compared to same period
last year. We are expecting 10-12 percent growth in utility segment
for FY13 and FY14.
The passenger car segment is expected to registered negative
growth during the next 2 years, it has already shown a decline of
7 percent during the current financial year. TML has lost over 4
percent market share since the last 3-4 years due to overcrowded
car market. In addition, it has just three products - Nano, Indica
and Indigo, which is becoming difficult to compete.
Valuation
At the CMP of Rs275, the stock is trading at 66.0x/80.1x of its FY12E/FY13E earnings
respectively, whereas on P/BV, it is trading at 4.3x/4.2x respectively.
We have used the sum of the parts (SOTP) valuation to arrive at the target price of
TML, which are divided into 5 sub-segments - TML standalone, JLR, TFL, TATA
Daewoo and TATA Tech. We have valued TML standalone based P/E multiple, whereas
JLR is valued at EV/EBITDA basis benchmarked with valuations of BMW and Daimler.
Others are valued on P/BV basis.
Currently, BMW and Daimler are trading at 5.6x and 9.2x on EV/EBITDA basis,
respectively. We have assigned a multiple of 4.5x to JLR, a 20 percent discount to
BMW's multiple to arrive at value of Rs231 per share. For TML standalone, based on
its historical and rolling forward multiple after taking into account the standard
deviation, we have given 37.9x to arrive at a value per share of Rs142.
TATA Daewoo, TFL and Tata Tech are valued at Rs3.4, 6.8 and 2.3, respectively. All
put together, we have arrived at a fair value of Rs386, which provides an upside potential
of ~40 percent from the current level.
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