Strong traction in JLR continues; Maintain Buy for Tata Motors :: Centrum

Strong traction in JLR continues; Maintain Buy
The overall results for Tata Motors (TAMO) for 2QFY13 reflected the same trend of the
past few quarters. The standalone operating performance continued to remain under
pressure with EBITDA margins at 5.2%, the lowest in the last 14 quarters, impacted by
elevated marketing spends and pricing pressure in the M&HCV business. The
management expects standalone margins to remain under pressure. JLR performance
in turn was significantly ahead of our expectations with EBITDA margins at 14.8%
driven by significant savings in RMC costs ( RMC per unit was lower by 5% QoQ) due to
favorable F/X environment despite drop of 2.6% in ASP QoQ ( Impacted due to overall
model-mix and also on account of higher contribution from low end Evoque variants ).
Geographic mix continues to remain favorable led by growth in China. We believe that
the recent launch of the New Range Rover coupled with planned launches of Range
Rover Sport and F-Type reflects a strong product line up that will aid strong volume
growth for JLR going forward. Also management indicated about higher profitability
for New Range Rover due to common platform sharing with Range Rover sport. We
continue to remain positive on the stock and maintain our Buy rating with target price
of Rs.307.
Strong traction in JLR continues; standalone disappoints: JLR reported revenues of
£3.3bn, EBITDA of £486mn and PAT of £305mn. Despite lower ASPs (down 2.6% QoQ
lead by model mix), significant savings in RMC due to favorable foreign exchange
environment and favorable geographical mix helped JLR deliver strong operating
performance. Standalone operating margins continued to remain under pressure at
5.2% (one of the lowest in the past 14 quarters).
Con call takeaways: 1) Given the high marketing and publicity initiatives for its PV
portfolio, domestic margins are likely to remain under pressure 2) Volume growth in
LCV/SCV segment will remain strong, but M&HCV outlook remains challenging 3) JLR
management is optimistic on volume traction driven by strong product line up 4)
Reaffirms annual capex guidance of £1.5bn largely to be funded through internal
accruals 6.) Guided capex of Rs.30bn for the standalone entity over the next 4-5years,
25-30% to be utilized towards R&D and 5) Pegs net automotive debt/equity at 0.29x on
a consolidated basis and 0.77x on a standalone basis 6) Tax shield at JLR UK is over £2bn
– tax rate is likely to remain in the range of 25-29% and for the standalone 18-20% for
FY13E.

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Valuations and Recommendation: At the CMP of Rs269, the stock is currently trading
at 8.4x FY13E consolidated EPS of Rs32.3 and 6.9x FY14E consolidated EPS of Rs38.9. We
continue to be positive on the stock and maintain Buy rating with a target price of
Rs.307.