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India Equity Research Reports, IPO and Stock News
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We were joined by Mr Vijay Somaiya, Head- Treasury and Investor Relation
and Ms Namrata Divekar, Asst. GM- Investor Relation from Tata Motors,
who shared their outlook on the industry and company.
Key highlights
n Overall performance to improve in the second half. Lower inventories (2.5 weeks) in
domestic operations and improving JLR volumes to aid earnings. Any fall in commodity
prices to be an additional positive for the company.
n Expect domestic passenger vehicle performance to remain subdued. Margins are
likely to remain under pressure, driven by increase in warranty period, discounts,
higher marketing/distribution spends etc
n Nano has been selling at the rate of 3,000-4,000 units per month. The product is
selling 60% in urban India and 40% in rural India
n In JLR, capex plan is for GBP 1.5bn during the initial 2 years and ~11% of revenue after
that. This includes replacement of platforms, introduction of 2 new segments- low
segment Range Rover and smaller Jaguar (2014 - 15), setting up manufacturing unit
in China, sourcing of engines, integration of model architecture, infrastructure for
emission norms in Europe etc
n 'Evoque' launch is scheduled in September 2011. The company, however, has been
facing problems of engine shortages from Ford. Order book stands at ~20,000 plus
units with major enquiries coming from US and Europe. The company is looking at a
sales volume of 70,000- 80,000 units/ year for Evoque in the medium term. The price
range is likely to range between GBP 22,000 -48,000 per vehicle.
n The company has been focusing on BRIC countries- especially on China and has
been engaged in short listing 3 partners for a JV, which is likely to be materialized late
2012 or early 2013.
n Higher discounts on Jaguar in US has been primarily to clear inventory of old XF
models as new 2012 models are likely to be in the market during September- October
2011. Also, given that discount is more at dealer level, the company expects overall
discounts to come down during August- September.
n Company hedges it forex risk in the ratio of 35%-75%. Currently, the hedge ratio stands
at 60-70%. The margin can be impacted either way depending upon the extent of
unhedged position (minimum of 25%) and currency volatility (8% at present)
n Gross debt at JLR remains at ~GBP1.5 bn with net debt at ~GBP300 mn indicating
strong cash generation. The company believes it is in a comfortable position to fund
the capex program.
Valuations
At CMP of Rs 729, the stock trades at PER of 5.3x/4.7x and EV/EBIDTA of 3.8x/3.3x our FY12
and FY13 estimates respectively. We have factored in subdued margins for FY12/13 due to
higher pressure on profitability in domestic business as well as JLR (product mix and macro
environment). For JLR, our volume estimates factor in a volume growth of >15% in 2HFY12,
driven by new launches. We maintain BUY rating with a TP of Rs 1,230 (based on SOTP)
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We were joined by Mr Vijay Somaiya, Head- Treasury and Investor Relation
and Ms Namrata Divekar, Asst. GM- Investor Relation from Tata Motors,
who shared their outlook on the industry and company.
Key highlights
n Overall performance to improve in the second half. Lower inventories (2.5 weeks) in
domestic operations and improving JLR volumes to aid earnings. Any fall in commodity
prices to be an additional positive for the company.
n Expect domestic passenger vehicle performance to remain subdued. Margins are
likely to remain under pressure, driven by increase in warranty period, discounts,
higher marketing/distribution spends etc
n Nano has been selling at the rate of 3,000-4,000 units per month. The product is
selling 60% in urban India and 40% in rural India
n In JLR, capex plan is for GBP 1.5bn during the initial 2 years and ~11% of revenue after
that. This includes replacement of platforms, introduction of 2 new segments- low
segment Range Rover and smaller Jaguar (2014 - 15), setting up manufacturing unit
in China, sourcing of engines, integration of model architecture, infrastructure for
emission norms in Europe etc
n 'Evoque' launch is scheduled in September 2011. The company, however, has been
facing problems of engine shortages from Ford. Order book stands at ~20,000 plus
units with major enquiries coming from US and Europe. The company is looking at a
sales volume of 70,000- 80,000 units/ year for Evoque in the medium term. The price
range is likely to range between GBP 22,000 -48,000 per vehicle.
n The company has been focusing on BRIC countries- especially on China and has
been engaged in short listing 3 partners for a JV, which is likely to be materialized late
2012 or early 2013.
n Higher discounts on Jaguar in US has been primarily to clear inventory of old XF
models as new 2012 models are likely to be in the market during September- October
2011. Also, given that discount is more at dealer level, the company expects overall
discounts to come down during August- September.
n Company hedges it forex risk in the ratio of 35%-75%. Currently, the hedge ratio stands
at 60-70%. The margin can be impacted either way depending upon the extent of
unhedged position (minimum of 25%) and currency volatility (8% at present)
n Gross debt at JLR remains at ~GBP1.5 bn with net debt at ~GBP300 mn indicating
strong cash generation. The company believes it is in a comfortable position to fund
the capex program.
Valuations
At CMP of Rs 729, the stock trades at PER of 5.3x/4.7x and EV/EBIDTA of 3.8x/3.3x our FY12
and FY13 estimates respectively. We have factored in subdued margins for FY12/13 due to
higher pressure on profitability in domestic business as well as JLR (product mix and macro
environment). For JLR, our volume estimates factor in a volume growth of >15% in 2HFY12,
driven by new launches. We maintain BUY rating with a TP of Rs 1,230 (based on SOTP)
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