Tata Motors - Domestic Loss Erodes Overall Profitability - Karvy

Tata Motors has reported dismal performance as its net profit declined by over 50% YoY & 21% QoQ to Rs. 16.3 bn (our estimate of Rs. 29 bn) in Q3FY13. Its standalone business reported Rs. 4.58 bn net loss, impacting its overall performance. Tata Motors' consolidated EBIDTAM declined by 281 bps YoY to 12.3%, while EBIDTAM at JLR declined 303 bps YoY & 77 bps QoQ to 14%, despite JLR volume rising 9.9% YoY to 94,864 units in Q3FY13. Adverse currency coupled with poor product mix impacted JLR's financials. Discontinuation of old Range Rover, initial small volume of newly-launched Range Rover, higher volume of low-end Evoque, and launching expenses acted negatively for JLR. JLR's average vehicle price fell 8% YoY & 5.5% QoQ, while it reported £296 mn net profit (down 24.7% YoY & 3% QoQ) on revenue of £3.8 bn (up 1.5% YoY & 15.7% QoQ). Its PAT was boosted by forex gain of £11 mn and gain on bond option ~£37 mn. Its consolidated tax rate rose to 39%, as huge loss at its standalone entity did not yield similar tax benefit in the quarter.

We expect near-term challenges for Tata Motors on standalone operations with ongoing pain in PV & CV business with no near-term sign of recovery in M&HCV space. Hence we believe that pain on standalone financial to continue. However, its JLR business has been gaining good traction on the back of success of new launches. We expect JLR's volume growth of 15% CAGR over FY12-FY15 and improvement in its operating margin from current low level. We are cautious on sharp decline in average selling price at JLR & JLR's huge capex plan of £2.75 bn in FY14 & ~£2.5 bn in FY15E, which would put pressure on Company's cash-flow and NPM, going forward.

Outlook & Valuation

In view of margin erosion at JLR and standalone business, we lower our FY13E, FY14E & FY15E EPS by 16.7%, 10.7% & 11.8% to Rs. 29.2, Rs. 37.6 & Rs. 44, respectively. On SOTP basis, Tata Motors' standalone business is valued at Rs. 80, JLR at Rs. 313 and other subsidiaries at Rs. 18 per share based on FY15E EBITDA, post excluding net debt of Rs. 83 per share. As we believe that the recent stock price correction provides room for an upside, we reiterate our "BUY" recommendation on the stock with downwardly revised target price of Rs. 328 (from Rs. 358).

Source : Equity Bulls

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