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Research
Tata Motors - Increasing Tax Rate & Margin Pressure to Impact Profitability; Downgrade to HOLD - Karvy
Posted On : 2012-08-11 07:09:16( TIMEZONE : IST )
Tata Motors has reported mediocre performance in Q1FY13, particularly on the net profit level. Its pro-forma PAT (adjusted for forex loss) stood at Rs. 27 bn, as against our estimate of Rs. 28.6 bn in Q1FY13. Its consolidated reported profit stood at Rs. 22.4 bn - mainly due to Rs. 4.4 bn forex loss during the quarter. Its EBITDA margins stood at 13.3% due to higher employee cost, which rose 46% YoY to Rs. 37.8 bn. Moreover, higher tax rate of 27.3% (up 1,230 bps YoY), due to deferred tax credit at JLR, deflated consolidated reported profit of the Company. Its standalone performance further deteriorated on both QoQ & YoY basis.
The net revenue at JLR rose 35% YoY (down 12% QoQ) to £3.6 bn in Q1FY13. Its EBITDA margin expanded 110 bps YoY, while declining by 11 bps QoQ to 14.5% in Q1FY13, due to product mix change and increasing contribution from China, benefitting on margins front. Its reported PAT stood at £236 mn due to forex loss of £67 mn. Its Management plans to spend £2 bn annual capex for JLR in addition to standalone capex of Rs. 31 bn in FY13. Management indicated slowdown in certain geographies for JLR and declining pricing premium in its fastest growing Chinese market, which we see as a concern for the Company and we expect its margins to get impacted, going forward. Moreover, we expect bottom-line to get impacted by likely rise in tax rate of JLR, going forward.
Outlook & Valuation
In view of lower margin and higher tax rate of JLR, we lower our EPS estimate to Rs. 36.4 (down 5.6%) and to Rs. 40 (down 12%) in FY13E & FY14E, respectively. The stock currently trades at P/E of 6x FY14E and EV/EBIDTA of 3.7xFY14E. We value Tata Motors on SOTP basis. Its standalone business is valued at Rs. 84 per share and JLR at Rs. 200 per share, based on FY14E EBITDA. Moreover, other subsidiaries are valued at Rs. 16 per share, and we have included a net debt discount of Rs. 32 per share. Accordingly, we lower our price target to Rs. 268 (from Rs. 305) and we downgrade Tata Motors to "HOLD" from "BUY".
