Tata Motors Limited - Indian operations - Staying afloat! - Antique

Tata Motors held an analyst meet to discuss the outlook for the currently lagging domestic business. Karl Slym (MD), C. Ramakrishnan (CFO), Ravi Pisharody (President - CV business) and Ranjit Yadav (President - PV business) represented the top management. Following are the key takeaways:

Passenger vehicles

For the PV business, given the parent brand pedigree, overall technological capabilities, scale of manufacturing facilities, etc., the management believes that they have performed much below their potential. They have undertaken a few organisational changes recently, and from an overall Tata group approach, they are now shifting to a more Indian car business approach for key areas like purchasing, strategy, and program planning. With sufficient capacities in place, their focus over the next 3-5 years is now more towards product development for new platforms, products, engines, etc. Most product launches will be an extension on the existing sub-brands, and with the Nano, taking cognizance of the fact that the initial marketing strategy probably underestimated the aspiration levels of the Indian car buyer, they plan to change the way the Nano is perceived as a brand. In the longer-term, they have high growth expectations from the Nano as an ideal city car.

Commercial vehicles

Management remains positive on the growth outlook for SCVs (Ace) given the rise of the hub and spoke model and with the LCV to MHCV ratio in India still at only ~3x (global average is >6x). For MHCVs, while they aren't entirely sure when the cyclical uptick will kick-in, they are fairly certain that industry shouldn't deteriorate much further. Industry-wise, the lull in MHCVs has stemmed from the mining and construction side, with agri being least affected. On the investment front, while they plan to increase CV sales from 600k pa currently to 1m in the next 3-4 years, they have sufficient capacity in place given that their current facilities already permit them to produce 1m units. Hence, future investments will be towards product development (new platforms, engines, etc.). Given the cyclical nature of the MHCV industry, they have tried to de-risk their business by investing more in counter-cyclical products (SCVs, spares, etc.) while trying to keep the break-even in MHCV operations at a bare minimum.

Our view

We reiterate our BUY recommendation with a target price of INR353 (unchanged). Our positive view stems from JLR's product life cycle being at its sweetest spot - all LR platforms (barring the newly launched Evoque) are due for substantial upgrade with new variants over the next 3-4 years. While we acknowledge the current lull in the domestic weakness, from a stock perspective, we aren't too worried about it given that street expectations have reduced more than proportionately. For the domestic car/UV business, neither are we expecting too much out of it, nor does it swing the needle too much in terms of target price.

Source : Equity Bulls

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