Tata Motors - CY15 to Set The Pace; Result Update Q2FY15:: Edelweiss

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Tata Motors’ (TTMT) Q2FY15 operating performance was in line with estimates driven by strong show in JLR offsetting weak performance in standalone. JLR reported strong free cash generation (GBP497mn, 10% of sales in Q2FY15 versus nil in Q1FY15). Robust product pipeline, favourable currency and China JV are expected to drive earnings going ahead. However, geography mix will remain adverse in near term (lower China sales due to Evoque rundown and slower ramp up of China JV). We expect below-potential standalone performance to continue despite impending commercial vehicle (CV) recovery till car capacity utilisation reaches breakeven levels (currently ~25%). We raise our FY16 consol PAT estimate by 7% factoring in improved prospects for JLR and favourable currency movement.

JLR continues to shine; India disappointment persists

Consolidated EBITDA at INR95.7bn (up 21% YoY) was in line with estimates. JLR’s EBITDA beat (GBP933mn, 3% ahead of estimates) was driven by better mix and lower marketing spend. Hedging gains cushioned adverse currency. APAT at GBP513mn was 7% ahead of estimates. Standalone performance continued to disappoint with EBITDA loss at INR2.6bn (margin at -3%) due to higher discounts/promotion spends. PAT loss of INR18bn was impacted by reversal of tax credits (INR7.3bn) pertaining to earlier years, implying the company has scaled down its expectation of future profits.

FY15, a year of transition; in FY16, exciting phase to begin

With production realignment and supply constraints phase behind, JLR will revert back to strong volume momentum led by new launches. We expect free cash generation to improve from GBP220mn to GBP550mn in FY16, with an upside risk.

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https://www.edelweiss.in/research/Tata-Motors--CY15-to-Set-The-Pace;-Result-Update-Q2FY15/27605.html