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Tata Motors Ltd Research Report - 21st Jan 2016

Automobile | Published on Nov 16th 2015

IT

Operating results below estimates: Tata Motors 2QFY2016 results have come in below our estimates on the operating front. Consolidated revenues grew marginally by 1% yoy to Rs61,318cr (coming slightly ahead of our estimates of Rs57,484cr). Growth was subdued, mainly due to flattish top-line at JLR. JLRs volumes grew a healthy 12% yoy during the quarter but an adverse product (higher sales of relatively lower priced cars in the companys product portfolio) and regional mix (lower China sales) led to lower realization, thus dragging the top-line. The consolidated operating margin at 11.2% was below our estimate of 13.4%. JLRs EBIDTA margin at 12.2% was significantly below our estimate of 15%. JLRs margins were impacted by lower China sales, adverse product mix and higher launch expenses. During the quarter, Tata Motors reported a loss at the net level due to a one-off charge of Rs2,493cr related to damage caused by fire explosions caused at the China port location, which affected JLR vehicles. However, Tata Motors had a tax credit to the tune of Rs704cr which resulted in the Adj profit coming in at Rs2,223cr for the quarter (better than our estimate of Rs2,041cr). Outlook and valuation: JLRs volumes are likely to recover from 2HFY2016 on back of new product introductions, tapping of new segments, and production ramp up at the China JV. We expect JLRs volumes to grow at 13% CAGR over the FY2015-2017 period. JLR aims to widen its presence across product segments and is poised to become a stronger luxury car player in the next four to five years. Also, the standalone business is expected to turn profitable at the operating level in FY2016 on back of pick up in the commercial as well as passenger vehicle segments and with gradual reduction in discounts. However, JLR margins are likely to remain under pressure as the company enters new segments which would lead to direct competition with established luxury players viz BMW, Audi and Mercedes. We expect JLR margins to be in 14-15% range as against 18% range in the last two years. Also, the stock currently trades at 28.9x its FY2016 and 14.9x its FY2017 adjusted earnings respectively, leaving limited scope of upside from current levels. Thus, we have a Neutral view on the stock.

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CMP 400
Target Price
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)148,621.51
MCAP NSE (Rs in Cr)148,726.74
P/E (x)12.20
EPS (Rs.)37.81
BV (Rs.)77.27
Div Yield (%)0.05
FV (Rs.)2.00
P/BV (x)2.44
EV/Sales (x)0.76
EV/EBITDA (x)6.55

Shareholding Pattern (%)

Foreign45.0
Promoter33.0
Institution14.0
Public & Others8.0
Corporate0.0
Grand Total100.0

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