JLR in the fast lane :: HDFC Securities

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JLR in the fast lane
JLR has embarked on its next phase of growth with a
strong new product pipeline, of which a few models
are positioned in high volume segments. JLR’s
capacity build-out plans would ensure that it has
adequate headroom to cater to a likely volume surge
over the next couple of years. Migration of new
models onto JLR’s core platforms would drive
integration benefits, which should partially offset the
impact of its ensuing weaker model mix. Favorable
currency movements over the past 3-6 months
provide near term margin cushion.
The outlook for Tata Motors’ India business appears
to be improving with the MHCV business nearing
break-even utilisation. PV segment market share
recovery is underway with launch of product
upgrades in the near term and with the introduction
of its new modular platform by FY17.
We have raised our FY16E/FY17E earnings by
1.7%/1.4% as we build in higher profit contribution
from JLR’s China JV. We maintain our BUY rating on
the stock and raise SOTP based TP to Rs 661 (earlier
Rs 626) as we roll forward to FY17E. Key risks include
regulatory pressure in China to further rationalise
vehicle prices across other models and adverse
currency movement.
JLR geared for high growth momentum
 JLR plans to launch ~10 new models/refreshes over the
next 18-24 months. Of these, XE and XE Cross are
positioned in high volume segments. These launches
would plug important gaps in its portfolio from the
perspective of becoming a full-scale premium car
manufacturer.
 JLR has laid out its capacity expansion plans to address
the strong volume growth momentum over the next
few years with total capacity increasing to 800k units
by FY17 from 450k units in FY14.
 New model launches would drive JLR’s average fleet
age down to ~3.5 years (presently 4 years) and double
average volumes/platform over the next two years.
Valuations
 Tata Motors trades at an adjusted EV/EBITDA and P/E
of 4.4x/3.9x and 12.8x/11.2x respectively on
FY16E/FY17E basis. We think JLR’s strong volume
growth and healthy FCF generation are key catalysts
for the stock to get re-rated.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010864