Tata Motors - 2QFY2013 Result Update - Angel Broking

Strong JLR performance; weak standalone results: Tata Motors (TTMT) registered a lower-than-expected bottom-line performance for 2QFY2013 due to sequential decline in operating margins (down 99bp to 12.3%) on account of deteriorating standalone performance and higher tax rate (32% as against 27.3% in 1QFY2013). Nevertheless, Jaguar and Land Rover (JLR) witnessed margin expansion of 40bp qoq to 14.8% led by favorable product-mix (higher share of Range Rover Sport) and exchange rate movement. The consolidated top-line registered a strong 19.9% yoy (flat qoq) growth, which was broadly in-line with our estimates aided by a 35.3% yoy (down 5.9% qoq) growth in JLR revenues. However, the adjusted net profit declined 22.4% qoq (10% yoy) due to high tax rate on recognition of deferred tax assets in 4QFY2012.

Standalone operating performance deteriorates further: TTMT recorded a 3.6% yoy (up strongly by 17.9% qoq on 17.1% volume growth) decline in top-line as net average realization declined 10.1% yoy on account of lower share of medium and heavy commercial vehicles (MHCV) in the product-mix. The EBITDA margin deteriorated to 5.2% (down 137bp qoq) on adverse product-mix, higher discounting and marketing spends in passenger vehicles (PV) and MHCV business and lower operating leverage benefits. During the quarter, JLR paid a dividend of GBP150mn to the parent company due to which other income stood at Rs.1,439cr (Rs.130cr in 2QFY2012). In the absence of the dividend income, standalone operations could have reported a net loss.

Outlook and valuation: We retain our positive view on JLR and expect a 12% volume CAGR over FY2012-14E driven by Evoque, new product launches (Range Rover, Range Rover Sport, Jaguar F-type and Sportbrake) and continuous ramp-up in China. Further, favorable market and product-mix and stable commodity prices will help mitigate raw-material cost pressures. At Rs.269, the stock is attractively valued at 6x and 3.2x FY2014E earnings and EV/EBITDA respectively. We maintain our Buy rating on the stock with a sum-of-the-parts (SOTP) target price of Rs.319.

Source : Equity Bulls

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