Tata Motors: 4Q Results Review: JLR margins at 16.9% (close to record levels) surprise positively, product launches to drive growth::

Tata Motors 4Q FY13 results were ahead of estimates as the consolidated PAT
came in at Rs39B (-37% y/y), ahead of estimates. The variance was driven by JLR
–as EBITDA margins came in at 16.9% (close to record levels), driven by the
ramp up of the new Range Rover. The India business loss was largely in line at
–Rs.3.1B (vs. –Rs.4.5B q/q). We reiterate our OW stance on the stock – we
believe that growth at JLR will be driven by new product launches, including the
Range Rover, the RR Sport and the F Type.

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 Management meet takeaways: JLR – demand remains upbeat, with new model
launches expected to drive sales. While growth is sustaining in the US, smaller
markets such as Russia, etc. are reviving. Though industry growth in China is
expected to normalize, JLR expects to grow ahead of the market driven by
dealer/product expansion. Further, the OEM has grown in Europe (despite the
slowdown), driven by new product launches. Management will launch eight new
models/variants over the year. Margins: Over 4Q, margins at JLR benefited
from a rich product mix, healthy volume growth and favorable currency impact.
Incentive levels remained in check. Capex: Management reiterated the JLR
capex spend at GBP2.7B. During FY13, the luxury OEM generated free cash of
GBP 600m, after capex spend of GBP2B. The cash on its books has risen to
GBP2.8B (up from GBP 2.4B in FY12), while debt levels are at GBP2.2B
(GBP 2B y/y). The engine manufacturing facility and capacity expansion
programs are on track for completion in CY14. Pension Deficit: During the year,
the company debited ~GBP275m from the ‘Reserves & Surplus’, representing
changes in the actuarial valuations of pension plans India Business: While the
local business environment remains challenging, management is launching new
products in the passenger car segment to revamp its aging product portfolio. They
will continue to invest Rs30B toward annual capex – a significant portion will go
toward R&D expenses. While the demand for M/HCVs remains sedate, LCVs
continue to witness healthy growth.
 Price target: We raise our Mar’14 PT to Rs345 (based on a sum-of-parts
methodology) to factor in the higher margins at JLR. We believe that new
product launches at JLR will drive stock price performance. Key Risks: Slowerthan-expected growth in key markets, any increase in discounting trends by
global luxury OEMs, and a delayed revival in the local industrial cycle.