Tata Motors: Weak quarter impacted by one-off provisions in standalone ops ::Kotak Sec, report

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Weak quarter impacted by one-off provisions in standalone ops. JLR reported EBITDA of GBP1.1 bn (+8% yoy), led by 10% yoy growth in net revenue. Headline EBITDA margin declined sequentially by 80 bps, but on a recurring basis (excluding oneoff gains and currency hedge impacts), EBITDA margin improved by 120 bps, led by a richer product mix and a favorable currency. The standalone business performance was impacted by a one-time provision of `6.5 bn, which led to a significant increase in losses. We maintain our BUY rating on the stock as we believe JLR product momentum is likely to be robust over the next two years and EBITDA margin will be resilient at 18- 19%, led by a favorable currency and product mix.

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--> JLR volumes to stay robust over the next two years, led by a strong product pipeline JLR reported a net profit of GBP593 mn (-4% yoy), 9% lower than our expectations, driven by a forex loss on assets and liabilities of GBP138 mn and GBP25 mn of realized currency losses on the hedge book. Volumes grew by 5% yoy, driven by strong growth in China and the UK. Average selling price increased by 5% yoy, reflecting a better product and geographical mix. The company had reported forex gains of GBP158 mn in 1HFY15, which buoyed EBITDA margins in 1HFY15, but in 3QFY15, JLR reported EBITDA margin of 18.6% which included a loss of GBP25 mn. JLR also received a one-time incentive of GBP54 mn from the Chinese government in 3QFY15. Excluding the one-time incentive and forex loss of hedge book, JLR’s EBITDA margin was 18.2%. The company indicated it would launch three products in CY2015 and was very confident of a strong growth in volumes in FY2016. Standalone business impacted by provisions The standalone business reported a PBT loss of `21 bn in 3QFY15, significantly higher than our estimate of a loss of `11 bn. This was mainly due to a one-time provision of `6.5 bn, related to write-offs on investments in the Singur plant and on recievables. Standalone adjusted EBITDA loss of `2.1 bn (excluding one-time provisions) was lower than our estimate of `1.8 bn due to lower-than-estimated gross margins. We believe new model launches in the passenger-car segment are likely reducing gross margins due to low volumes. We reduce our consolidated earnings estimate; change target price to `670 (`680 earlier) We have cut our consolidated earnings estimates by 5-7% over FY2015-16, led by an increase in losses in the standalone business and depreciation of the GBP versus the INR. We have maintained our EBITDA estimates for JLR. Our target price is `670 based on sum-of-the-parts valuation methodology.

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily06022015mh.pdf