Buy Tata Motors - TP Rs.322 - Emkay

Buy, Target Price Rs 322 JLR - Normalized growth story

Favorable geography mix to alleviate Euro concerns: Expect global premium car industry to report a growth of ~4% to 6% for CY13. Russia, China, ROW contribution has increased from ~28% to ~45% of global volumes by Q4FY12. JLR volumes for Europe/US is expected to report a decline of 2%/0%. Growth in China is expected to be around 24% New launches to sustain momentum: Recent launches of Evoque in Landrover and 2.2L XF in Jaguar have been well received and should drive volumes in FY13.

Company is expected to introduce two major products: new Range Rover (based on premium lightweight architecture) in 2HCY12 and XF sportsbrake in 1QCY13 apart from upgrades/variants.

Strong FCF generation in JLR, big positive: Free Cash Flow generation improved from GBP 876 mn in FY11 to GBP 958 mn in FY12 despite higher capex. Expect free cash flow of GBP 609 mn/806 mn despite capex of GBP 1.9bn/2 bn in FY13/14.

Capacity ramp up on track: Capacity to reach to 400,000 units by 2H which can be further augmented by 10% with limited investments. Thereafter company would have to incur higher capex to augment capacity.

Near term catalyst and earnings performance: Expect earnings performance at 14.7% CAGR in FY12-FY14E period aided by strong volumes in JLR and FCF generation. Emkay's earnings forecast are Rs 47/share and Rs 51.5/share for FY13E and FY14E respectively. Attractive valuations at EV/EBIDTA of 3.4x/2.9x FY13/14E.

Source : Equity Bulls

Keywords