Buy Tata Motors - CMP: Rs.306, TP: Rs.360 - Prabhudas Lilladher

New platform for Land Rover models to lead to a 12.6% CAGR in volumes: JLR recently launched the all-aluminium bodied new 'Range Rover' which has generated a huge response. Given the fact that there was no platform change over the last decade, there could be a pent-up demand for the new 'Range Rover' and the upcoming product launches on the new platform. In addition to the new Range Rover, JLR is likely to start the wholesale sales of the new 'Range Rover Sport' by June'13.

Jaguar to address newer segments leading to a 20.0% CAGR in volumes: Jaguar has just three models - XF, XJ and XK - in the higher-priced segments. To increase its addressable markets, Jaguar has planned few launches mainly 1) Station wagon XF - to address ~45% of the European Market and 2) New All-wheel drive (AWD) products - 40% of the US market remained untapped. At the same time, 'XF' and 'XJ' with a 2 litre engine have been launched in China which are expected to lead to better pricing as it would attract lower consumption tax. Increase in addressable segments would lead to a 20.0% CAGR in volumes over FY13-FY15E period.

Rising share of China in sales and richer product mix to improve JLR's margins: JLR enjoys higher ASPs and margins in China than in any other geography due to the stronger demand environment in the country. At the same time, the new 'Range Rover' and 'Range Rover Sport' are likely to account for 34.6% of JLR volumes in FY15E as against 21.8% in FY13E. Most of JLR's new product launches are either new models in higher priced segments or more expensive product upgrades of existing products (new Range Rover). We expect JLR's blended ASPs to rise over the next two years and forecast a 9-10% ASP increase over FY13-15E period.

Upgrade to 'BUY' with a SOTP based TP of Rs360/share: We value JLR at 3.5x FY15E EV/EBITDA multiple at Rs296/share. We value standalone business at Rs41/share, whereas, we value the other subsidiaries at Rs23/share. The stock is currently trading at 8.0x FY14E EPS and 6.6x FY15E EPS. However, adjusting for R&D expense, the valuation stands at 9.4x FY14E and 8.0x FY15E.

Source : Equity Bulls

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