Tata Motors - JLR in Ramp up Mode; Warming up for Strong H2CY15; Result Update Q3FY15 ::Edelweiss, report

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Tata Motors’ (TTMT) Q3FY15 below expected operating performance was driven by poor show in standalone and other subsidiaries. JLR delivered an in line EBITDA at GBP1.1bn. JLR–management highlighted: (1) healthy demand outlook in US/UK/China; (2) lowered capex guidance of ~GBP3.2bn (GBP3.7bn earlier) for FY15, FY16 at ~GBP3.8bn, thereby aiding free cash generation; and (3) cautious margin outlook due to plant start up costs in China, ramp up of new engine plant and ramp up of new launches. We perceive management’s margin stance as conservative given currency/commodity/lower freight cost tailwinds. We were disappointed by the slower ramp up guidance for China JV/Discovery Sports/XE and Ingenium engines, thereby affecting near term volumes. While we expect positive surprise on JLR front, we believe the standalone business will continue to remain a drag unless utilisation improves materially.

Weak standalone performance derails operating show

Consolidated adjusted EBITDA at INR103.6bn (up 4% YoY) was ~5% below estimate. Standalone business disappointed significantly with adjusted EBITDA loss at INR -2.6bn (our estimate INR -1.2bn). JLR delivered a decent performance with revenue/ EBITDA at GBP5.9bn/1.1bn, 5%/2% ahead of our estimate. APAT at GBP712mn was significantly ahead of our estimate on lower tax rate (11% versus 26% in Q2FY15).

JLR on a strong footing; standalone concerns persist

We believe JLR has sufficient levers to drive strong volume/earnings momentum over FY15-17 led by: (1) new launches (Discovery Sport, XE, F-Pace); (2) ramp up in China JV; (3) improving supply constraints (UK capacity to reach 550k by March 2016); and (4) currency/commodity tailwind.

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https://www.edelweiss.in/research/Tata-Motors--JLR-in-Ramp-up-Mode;-Warming-up-for-Strong-H2CY15;-Result-Update-Q3FY15/28266.html