Tata Motors - Good performance in difficult environment; Outlook cautious - Prabhudas Lilladher

Consolidated operating performance better than estimates: Tata Motors posted a 12.9% YoY de-growth in the Tata Vehicles segment revenues, while JLR reported a top-line growth of 59.0% YoY. This led to an overall 29.0% YoY growth in the company's consolidated top-line at Rs433.2bn (PLe: Rs420bn). On account of 110bps YoY improvement in EBITDA margin at JLR of 14.5% (PLe: 14.0%), the consolidated EBITDA margin improved by 110bps YoY to 14.4% (PLe:13.6%). EBITDA grew by 40.2% YoY to Rs62.5bn. Adj. for MTM forex loss of Rs4.4bn, PAT grew by 30.6% YoY to Rs26.8bn (PLe: Rs24.9bn).

- Q4FY12 standalone performance surprises positively: Tata Motors posted 8.9% YoY decline in its top-line at Rs105.9bn (PLe: Rs109bn). Overall volumes de-grew by 2.2% YoY, whereas average realization/vehicle declined by 6.9% YoY on account inferior product mix skewed towards passenger cars (M&HCV volumes were down 24.2% YoY). On account of lower volumes, EBITDA margins declined by 130bps YoY to 7.3% (PLe: 6.7%). A 60bps YoY decline in raw material cost restricted the decline in EBITDA margins at 130bps YoY. As a result, EBITDA degrew by 24.2% YoY to Rs7.7bn. Led by higher other income at Rs4.4bn, PAT decline was arrested at 8.2% YoY to Rs3.6bn.

- JLR's EBITDA margin flat QoQ @ 14.5% despite tough environment: Strong 34.6% YoY growth in JLR revenues at ₤3.6bn was driven by demand for new products (Range Rover 'Evoque' sold ~27k units v/s NIL) with volume growth for the quarter at 34.4%. EBITDA margins improved 110bps YoY to 14.5% on account of 1) operating leverage driven by strong volumes 2) strong geographic mix (China accounting for ~22% of the sales) and 3) favourable exchange rate environment i.e. strengthening USD and weakening Euro against the pound. Despite a tough environment, JLR was able to maintain its margins sequentially, which is commendable. As a result, EBITDA grew by 45.6% YoY to £527m. Adj. for the MTM forex loss of £67m, JLR PAT grew by 39.6% YoY at ₤302m.

- JLR declares maiden dividend post acquisition of GBP150m in August 2012: JLR declared its maiden dividend of £150m to parent Tata Motors, thereby, indicating management's confidence on future cash flow generation. Operating cash flow for the current quarter is £106m, post capex and product development spend of £424m.

- Concall highlights- Management sounded cautious: JLR is likely to come up with two new launches i.e. Jaguar XF station wagon in Q3FY13E and new Range Rover platform in Q4FY13E. Management sounded cautious regarding volume growth at JLR in Europe and UK as the economy is slowing down and incentives are inching higher. Following the recognition of net deferred tax asset in Q4FY12, the effective tax rate in P&L has risen. Now the effective tax rate is pegged at 28-30% at JLR. Cash, bank balances and liquid mutual funds at JLR stood at £2.3 bn.

- Our SOTP valuation stands at Rs276/share: We roll forward our valuation to FY14E. We value JLR at 3.5x FY14E EV/EBITDA multiple at Rs208/share. We value standalone business at Rs43/share, whereas, we value the other subsidiaries at a 30% holding discount at Rs25/share.

- Adjusted for R&D, stock trades at a fair valuation of 7.7x FY13E EPS: The stock is currently trading at 6.4x FY13E EPS and 5.5x FY14E EPS. However, accounting for R&D expense of ₤400m (Rs33bn), the valuation stands at 7.7x FY13E and 7.2x FY14E. This seems fair compared to Global Peers' average P/E of 7-8x FY13E earnings. We believe volumes could be lower than the monthly average of ~29K as the old 'Range Rover' is likely to be phased out and be replaced by new variant by December 2012. The momentum in the monthly volumes would be the key to the stock price performance. On account of ~15.4% upside from the current levels, we maintain our 'Accumulate' call on the stock.

Source : Equity Bulls

Keywords