Tata Motors - YTDFY13 JLR sales up 21% yoy - BRICS

Wholesale volume up 7% yoy in October 2012

Tata Motors' JLR sales (wholesale) for October 2012 were lower that estimated at 27,897 units, up 7% yoy (up 5% mom). Land Rover sales of 24,558 units — up 17% yoy (up 4% mom) — partially offset the impact of decline of 37% yoy (up 19% mom) in Jaguar sales to 3,339 units on overall sales.

Monthly volume in line with expectation: Over the last three years, average sales in Q3 have contributed27% of JLR's annual volume, as against31% in Q4. Based on this trend as a guideline, JLR's monthly sales can be estimated to be31,500 units in Q3. JLR's sales for October 2012 improved mom, but were lower than the estimated run-rate for the quarter.

YTDFY13, JLR reported a growth of 21% yoy in sales to 188,791 units — Jaguar's sales were down 17% yoy to 24,945 units, while Land Rover sales grew 30% yoy to 163,846 units.

Maintenance shutdown and model change impact sales

JLR's US sales down 20% yoy

In the US market, passenger vehicle sales grew 13% yoy, but declined 9% mom, while luxury car sales grew 14% yoy. The growth in the passenger car segment has been attributed to low interest rates, increase in sales of pick-up trucks, new models and pent-up demand. Toyota and Honda Motor led overall sales, as they benefited from the increased demand for compact cars (gasoline prices remained high).

JLR was the only luxury car-maker in the US - other than Volvo - to record a decline in sales. Jaguar sales fell 23% yoy, while Land Rover sales were down 20% yoy.

UK - JLR posts slower than average growth in luxury cars

In the UK market, passenger car sales for October 2012 rose 12.1% yoy to 151,252 units, while volumes for the first 10 months of 2012 increased 5.0%, or 83,823 units, to 1,771,861 units. The demand for small cars has grown rapidly, partly due to new models - volume was up 52% YTD in the Mini segment and 5.8% YTD in the Supermini segment. Together, these two segments account for close to 40% of the market.

Luxury car sales grew 19% yoy in October 2012 to 61,012 units. JLR's growth was slower than the average growth, up 15% yoy to 4,310 units. Jaguar sales grew 19% yoy in October 2012, while Land Rover sales were up merely 14% yoy.

Russia - JLR's sales growth slows down to 22% yoy

After recording a growth of 50%+ yoy for five consecutive months, JLR's sales growth in Russia slowed down to 22% yoy. The overall passenger car market slowed down in Russia, with sales up 5% yoy, but down 2% mom - despite reduced consumer appetite in the other segments. Retail auto registrations remained higher than the prior year's levels, supported by robust order banks generated in the first half of the year and an increase in market incentives provided in recent weeks. However, the current new order intake is lower in comparison to the year ago level and will impact sales performance in the coming months.

The growth in luxury cars was slower than the growth in overall passenger cars - up 2.6% yoy, but down 5% mom to50,000 units. Jaguar reported its first yoy decline in Russia in this financial year (starting April 2012), down 37% yoy to 80 units. Land Rover posted a growth of 30% yoy to 1,406 units.

Valuation

We believe JLR's performance will continue to drive Tata Motors' stock, as it contributes 75% of the company's total revenue and90% of profit. We value the standalone business at Rs54 per share, 12x our FY14 core earnings estimate, and value JLR at 7x FY14 earnings (after adjusting for capitalisation for product development) at Rs319 per share. We assign a discount of 20% to investments and subsidiaries (Rs278 per share) to arrive at our SOTP-based target price of Rs332 per share. Maintain Buy.

Source : Equity Bulls

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