Tata Motors (2QFY15) : JLR in high gear, India remains weak. BUY :: HDFC Sec, link

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JLR in high gear, India remains weak
Tata Motors’ 2QFY15 consolidated topline (Rs 605bn,
+14% YoY) and operating margin (17%,+170bps YoY)
were inline with expectations. However, APAT
missed estimates by a wide margin due to reversal of
earlier tax credit in the standalone business. JLR’s
operating performance (19.4%, +190bps YoY)
surprised positively on the back of a strong
model/regional mix and forex gains. India business
disappointed once again with weak operating
performance resulting in PBT/APAT loss of Rs
10.8bn/18.2bn.
In our view, JLR’s near term operating performance
could see volatility, given the ramp-up of lower ASP
models and start of local production in China.
Further, currency movement remains an
imponderable variable. Nonetheless, the longer term
structural growth story remains compelling with
JLR’s exciting new product cycle, which would also
drive its platform consolidation efforts. Current
valuations appear attractive with EV/EBITDA of
4.5x/3.9x on FY16E/FY17E. We have a BUY rating
with an SOTP based TP of Rs 626.
Key highlights
 Over the next couple of quarters, JLR’s
volumes/margins would be impacted by a confluence
of positive/negative factors. Increased capacity at
Solihul for high ASP products - RR/RRS, weakening GBP
vs. USD and accrual of local incentives would drive
operating performance. However, launch expenses for
XE/Discovery Sport and production disruption ahead of
model changeover and shift to China would be a drag
on near term performance.
 Per the management, China’s demand for premium
vehicles is likely to remain healthy, although growth
rates may come off from the high base. JLR’s current
inventory remains under control at around 1 month of
sales. JLR plans to expand dealership network from 160
to 250 over the next 15-18 months.
 India business continues to face challenges with low
utilization levels (CVs: 50%, PVs: 25-30%). Management
hopes to improve operating performance with a
recovery in CV demand and new product actions in the
PV segment.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3009852