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Tata Motors (TTM)
Alert: Jaguar Land Rover Conference Call Takeaways
What's New? — Jaguar Land Rover mgmt held a conference call to discuss FY11
results for the company. Key takeaways:
1Q volume slowdown reflects weak UK and EU demand… — 1Q global retail
sales for JLR rose a modest 7% YoY. Per mgmt, a general slowdown in UK and
mainland Europe resulted in weak demand in these regions, impacting overall
volumes. Notably, Jaguar retail sales declined 10% YoY to 12,600 units in 1QFY12
(LR +10% Y/Y).
...while momentum picks up in China and Russia — Strong retail sales growth in
China (+48% YoY), Russia (+57% YoY) and RoW (+26%) mitigated impact of UK
and EU deceleration. While mgmt expected demand in EU and UK to remain weak
in the near term, it appeared highly optimistic on overall vols in FY12 due to 1)
strong demand scenario in emerging markets, (esp China, aided by establishment
of national sales company), 2) very favorable customer response (around 18,000
orders) for the Evoque, 3) New model refreshes for XF, XK and XJ. Specifically on
the Evoque, mgmt noted its contribution margin exceeds that of the Freelander, but
is less than that of the RR Sport.
Model year refresh for XF dragged Jaguar volumes — Mgmt attributed the
sluggishness in Jag sales (in FY11 and 1Q12) to the MY11 model running out
before the MY12 started retailing. Mgmt appears optimistic on vol pick-up 2QFY12
onwards. We note that XF accounted for 66%/63% of the overall Jaguar retail
volumes in FY10/FY11 respectively.
Update on China — JLR had around 50 dealerships in China end FY11 and plans
to double these end FY12 – dealer groups are enthused about retailing JLR
products. Over the next few years, mgmt plans to open an assembly operation in
China, but plans have yet to be crystallized. Mgmt acknowledged that ASPs in
China are $98,400 (co. average $66,240 in 4QFY11) due to a combination of mix
(Range Rover, RR Sport, Jaguar XJ) and also higher duties.
Smaller Jaguar and engine manufacturing facility in the pipeline — Mgmt
acknowledged that JLR plans to enter into the small premium segment (Audi A4,
BMW 3 Series, Mercedes C Class) in order to boost volumes –alluding to a strong
possibility of the introduction of the 'Baby Jag'. The company is also planning to
manufacture its own engines (replacing the current Ford engines) in the next 4-5
years. Capex plan was reiterated at $2.46 billion annually for the next few years.
We remain cautiously optimistic — we acknowledge that JLR could see some
margin erosion in 1HFY12 due to a) currency, b) margin pressure in J due to
operating de-leverage, but maintain Buy, given longer-term optimism on LR product
refreshment / new product introductions.
Tata Motors
Valuation
Our $27.04
3 4
target price for Tata Motors is based on a sum-of-the-parts valuation.
We value Tata Motors' core business at $14 per ADR (on a ADR count of 659 million
ADRs), based on 7x Mar13E EV/EBITDA (rolled forward from Mar12). We value
subsidiaries and investments at $1.91 (previously $2.04) per ADR. We attribute
around $11.12 per ADR to JLR - we value this at 3x Mar13E EV/EBITDA, which
equates to around $13.55 per ADR and then deduct the total net debt which
amounts to around $2.43 per ADR. At our target price, TTMT would trade at a
consolidated price-to-book value of 2.9x / 2.2x (FY12/13E), which appears
reasonable when juxtaposed against ROEs of 35%, 28% in FY12E/13E
respectively. On a P/E basis, the ADR would trade at around 8.2x and 7.6x
FY12E/13E EPADR.
Risks
Our quantitative risk rating system, which tracks 260-day historical share price
volatility, suggests a Medium Risk rating for Tata Motors ADRs. We also assign a
Medium Risk flag, as a) JLR is exposed to risks of a global macro slowdown, b)
competitive intensity from JLR’s peer group is increasing, c) cyclical risks within the
CV business are increasing.
The key downside risks to our estimates that could prevent the ADRs from reaching
our target price emanate from: a) Weaker-than-forecast demand conditions for
luxury cars and SUVs in Europe and the U.S. Given the high leverage of this
business to both volumes and EPADR, the key risk is if JLR volumes are lower than
anticipated; b) Our CV forecasts are predicated on our economist Rohini Malkani's
view that industrial growth should rebound from 2HFY12. c) We assume that the
credit and liquidity environment will remain stable. A credit 'crunch' could impact
consumer confidence and possibly JLR's sales (especially in developed markets).
Given TTMT's fairly leveraged balance sheet, this is a risk. Key upside risks are as
follows: a) Better-than-forecast growth in the Range Rover / Land Rover product
portfolio, b) a turnaround of the passenger car business in India, and c) a sharp
upward climb in the CV cycle in India.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Motors (TTM)
Alert: Jaguar Land Rover Conference Call Takeaways
What's New? — Jaguar Land Rover mgmt held a conference call to discuss FY11
results for the company. Key takeaways:
1Q volume slowdown reflects weak UK and EU demand… — 1Q global retail
sales for JLR rose a modest 7% YoY. Per mgmt, a general slowdown in UK and
mainland Europe resulted in weak demand in these regions, impacting overall
volumes. Notably, Jaguar retail sales declined 10% YoY to 12,600 units in 1QFY12
(LR +10% Y/Y).
...while momentum picks up in China and Russia — Strong retail sales growth in
China (+48% YoY), Russia (+57% YoY) and RoW (+26%) mitigated impact of UK
and EU deceleration. While mgmt expected demand in EU and UK to remain weak
in the near term, it appeared highly optimistic on overall vols in FY12 due to 1)
strong demand scenario in emerging markets, (esp China, aided by establishment
of national sales company), 2) very favorable customer response (around 18,000
orders) for the Evoque, 3) New model refreshes for XF, XK and XJ. Specifically on
the Evoque, mgmt noted its contribution margin exceeds that of the Freelander, but
is less than that of the RR Sport.
Model year refresh for XF dragged Jaguar volumes — Mgmt attributed the
sluggishness in Jag sales (in FY11 and 1Q12) to the MY11 model running out
before the MY12 started retailing. Mgmt appears optimistic on vol pick-up 2QFY12
onwards. We note that XF accounted for 66%/63% of the overall Jaguar retail
volumes in FY10/FY11 respectively.
Update on China — JLR had around 50 dealerships in China end FY11 and plans
to double these end FY12 – dealer groups are enthused about retailing JLR
products. Over the next few years, mgmt plans to open an assembly operation in
China, but plans have yet to be crystallized. Mgmt acknowledged that ASPs in
China are $98,400 (co. average $66,240 in 4QFY11) due to a combination of mix
(Range Rover, RR Sport, Jaguar XJ) and also higher duties.
Smaller Jaguar and engine manufacturing facility in the pipeline — Mgmt
acknowledged that JLR plans to enter into the small premium segment (Audi A4,
BMW 3 Series, Mercedes C Class) in order to boost volumes –alluding to a strong
possibility of the introduction of the 'Baby Jag'. The company is also planning to
manufacture its own engines (replacing the current Ford engines) in the next 4-5
years. Capex plan was reiterated at $2.46 billion annually for the next few years.
We remain cautiously optimistic — we acknowledge that JLR could see some
margin erosion in 1HFY12 due to a) currency, b) margin pressure in J due to
operating de-leverage, but maintain Buy, given longer-term optimism on LR product
refreshment / new product introductions.
Tata Motors
Valuation
Our $27.04
3 4
target price for Tata Motors is based on a sum-of-the-parts valuation.
We value Tata Motors' core business at $14 per ADR (on a ADR count of 659 million
ADRs), based on 7x Mar13E EV/EBITDA (rolled forward from Mar12). We value
subsidiaries and investments at $1.91 (previously $2.04) per ADR. We attribute
around $11.12 per ADR to JLR - we value this at 3x Mar13E EV/EBITDA, which
equates to around $13.55 per ADR and then deduct the total net debt which
amounts to around $2.43 per ADR. At our target price, TTMT would trade at a
consolidated price-to-book value of 2.9x / 2.2x (FY12/13E), which appears
reasonable when juxtaposed against ROEs of 35%, 28% in FY12E/13E
respectively. On a P/E basis, the ADR would trade at around 8.2x and 7.6x
FY12E/13E EPADR.
Risks
Our quantitative risk rating system, which tracks 260-day historical share price
volatility, suggests a Medium Risk rating for Tata Motors ADRs. We also assign a
Medium Risk flag, as a) JLR is exposed to risks of a global macro slowdown, b)
competitive intensity from JLR’s peer group is increasing, c) cyclical risks within the
CV business are increasing.
The key downside risks to our estimates that could prevent the ADRs from reaching
our target price emanate from: a) Weaker-than-forecast demand conditions for
luxury cars and SUVs in Europe and the U.S. Given the high leverage of this
business to both volumes and EPADR, the key risk is if JLR volumes are lower than
anticipated; b) Our CV forecasts are predicated on our economist Rohini Malkani's
view that industrial growth should rebound from 2HFY12. c) We assume that the
credit and liquidity environment will remain stable. A credit 'crunch' could impact
consumer confidence and possibly JLR's sales (especially in developed markets).
Given TTMT's fairly leveraged balance sheet, this is a risk. Key upside risks are as
follows: a) Better-than-forecast growth in the Range Rover / Land Rover product
portfolio, b) a turnaround of the passenger car business in India, and c) a sharp
upward climb in the CV cycle in India.
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