J.P. Morgan -Tata Motors

Tata Motors (TTMT IN) Apr'14 Domestic India sales at -34% y/y remain weak		Overweight Price: Rs414.75 02 May 2014 Price Target: Rs450.00 PT End Date: 31 Mar 2015

Tata Motors’ domestic monthly sales at 33,892 units declined 34% y/y over April as the local market conditions remained sedate. We reiterate our OW rating on Tata Motors, given our view that new product launches at JLR will drive growth. Further, we believe that the local business will benefit from new model introductions – particularly in the passenger car business.

· Domestic M/HCV sales declined 16% y/y ay 8,425 units: While M/HCV sales declined 16% y/y, they are stabilizing at current lower levels. Managements highlighted that it expects a 2H FY15 recovery – the extent of the improvement will be subject to the policies of the next government.

· LCV sales declined 43% y/y: Similarly LCV sales at 14,804 units declined 43% y/y, reflecting the weak environment.

· Passenger car sales at 7,441 units declined 36% y/y: Sales of the Nano/ Indica/ Indigo range in April were 5,653 units (-37% y/y) while the SUV segment sales were 1,788 units (-33% y/y).

The OEM is launching new models – the Zest and the Bolt in the local passenger segment in July, after a gap of several years. The new Revotron engine that was introduced recently is a significant step in upgrading the ageing product. We believe that the new products will enable Tata Motors to stabilize their market share in the passenger car segment.

Figure 1: Tata Motors Domestic monthly volumes (in unit nos)

Source: Company

 

Investment Thesis

While the India business remains weak, with CV sales expected to remain below trend, we believe new product launches at JLR will drive stock price performance. The newRange Rover Sport model has received an encouraging customer response. We maintain our Overweight rating on Tata Motors.

Valuation

Our Mar-15 PT of Rs450 is based on our sum-of-the-parts valuation methodology, as shown below. We believe new product launches at JLR will drive stock price performance.

Tata Motors: SOTP valuation

Rs/share	Mar-16E	Valuation multiple
Core Business - EV	22	7.25x EV/EBITDA
Jaguar Land Rover	382	3.75x EV/EBITDA
Others	45	Other subsidiaries & investments
Total	450

Source: J.P. Morgan estimates.

Risks to Rating and Price Target

Key downside risks to our rating and price target include increases in discounting trends by luxury OEMs and a delayed revival in the local industrial cycle.

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