Tata Motors - JLR beats estimate; Maintain Buy - Centrum

Tata Motor's (TAMO) 4QFY13 overall operating performance was significantly better than our expectations largely driven by JLR. EBITDA margins for JLR during the quarter stood at 16.9% vs. our estimate of 15.1% largely driven by strong revenue growth (led by better product mix due to the launch of new range rover, richer market mix - continued growth in China and favorable fx). As a result, despite weaker operating performance for the standalone business (EBITDA margins at 2% vs. est. 2.7%), the overall Consolidated EBITDA margin in the quarter stood at 13.9% vs. our estimate of 12.8%. Management indicated strong volume growth for JLR in FY14E largely driven by new product launches (JLR plans 8 new products in FY14E and has indicated 30-40 new models would be launched over the next 2-3 years). Management also sounded confident of China growth and has guided for 20-25% volume growth for FY14E. We continue to remain positive on the stock and maintain our Buy rating with revised target price of Rs.375 as we roll forward to FY15E from earlier Sept 2014.

- JLR Highlights: 1.) Volume growth remains strong: For 4QFY13, combined sales for JLR stood at 116,340 units registering a growth of 19% YoY and 23% QoQ. While Jaguar sales stood at 21,163 units (up 50% YoY), LR sales stood at 95,177 units (13.4%). Overall for FY13, combined JLR sales stood at 372,062 units (up 18% YoY). Product momentum for JLR continues to remain robust - to launch 8 new refreshes/models in FY14E. F type will start retailing in July and Range Rover Sports in August 2013. 2.) Revenues: Overall revenues for JLR for 4QFY13 stood at 5,053mn pounds registering a growth of 22% YoY and33% QoQ largely driven by better than expected realizations. Net realization per unit for the quarter stood at 43,433 pounds/ vehicle registering a YoY growth of 2.7% and strong growth of 8.3% QoQ. On QoQ basis, realization growth was largely driven by better product mix supported by launch of new Range Rover, richer regional mix supported by continued growth in China and favourable Fx. 3.) Operating performance beats estimates: Driven by strong operating leverage, EBITDA margins for JLR stood at 16.9% during the quarter, up 230bps YoY and 290bps QoQ. Despite RMC/unit inching up QoQ, strong revenue growth led to lower RMC to sales (60.8% vs. 64.4% in 4QFY12 and 63.3% in 3QFY13). For FY13, the overall EBITDA margins for JLR stood at 15.2% vs. 15% in FY12. 4.) Earnings remain strong: Driven by strong operating performance, PAT for JLR stood at 378mn pounds after considering the loss of 118mn pounds (revaluation of USD loans and M2M of hedging instruments).

- Standalone Highlights: 1.) Overall operating performance for the standalone business stood tad lower with EBITDA margins at 2% vs. our est. of 2.7%. Net revenues at Rs.110bn registered a YoY drop of 32% but QoQ growth of 4.1%. During the quarter standalone business registered a loss of Rs.3.12bn in line with our estimate of 3.19bn loss. 2.) The standalone net debt to equity was 0.83x in FY13. The company continues to be on negative working capital in standalone business. 3.) It has incurred a capex of Rs. 29.9bn in FY3 and plans to spend Rs30bn every year over the next three years. Major proportion of this capex will be used for developing new products for passenger car business. The major part of the capex would be towards Passenger Vehicle division as a large part of the capex for Commercial Vehicles segment has been done over FY12-FY13.

- Valuations and Recommendation: At the CMP of Rs314, the stock is currently trading at 7.8x FY14E consolidated EPS of Rs40.3 and 6.9x FY15E consolidated EPS of Rs45.2. We continue to be positive on the stock and maintain Buy rating with a target price of Rs.375 (based on SOTP of Rs.25 for standalone operations, Rs.20 for subsidiaries (excluding JLR) and Rs.330 for JLR.

Source : Equity Bulls

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