Tata Motors - Jag getting its claws back! - Antique

For JLR, Jaguar has been the star in recent months, with volumes aided by the new F-Type. Feedback/reviews of the F-Type have been very strong and we understand that the company has already sold out half of its planned production (i.e. 10-12k units in FY14). In May, JLR retail sales at 32,477 units (up 12% YoY/14% MoM; in-line) were mainly driven by Jag - at 6,174 units (up 36% YoY/31% MoM), with the F-Type accounting for ~11% of sales. Given that it's not directly in the same segment as the XK (albeit similar class of buyers), most F-Type sales are incremental. To our mind, even if it does cannibalise a bit, the XK with steady-state retails at <300/month, doesn't stand to lose too much. We aren't extrapolating 4Q's strong margin show, even while the market/product mix seems to be only improving. We reiterate BUY with a target price of INR376 (unchanged).

May retails driven by Jag...

JLR May retail sales at 32,477 units (up 12% YoY/14% MoM), was broadly in-line with our estimate of 32k. Growth was mainly aided by Jag - at 6,174 units (up 36% YoY/31% MoM), with the F-Type accounting for 688 units. While Land Rover was marginally below estimated - at 26,303 units (up 8% YoY/11% MoM; our estimate 27k), we remain positive on future volumes on the back of a strong response to new models.

Aren't extrapolating strong 4Q margins despite an only improving mix

From here on, the product and market mix is only improving. China is expected to outpace other markets (keeping margins structurally on an uptrend), while LR volume growth would be aided by the new RR and RR Sport (unlike last year, where volumes were driven by the presumably lower margin Evoque). Currency trend too has been favourable. Further, we reckon that the extravagant launch of the new RR Sport (in March '13) would have adversely impacted margins by 50bps during 4Q and hence, JLR's adjusted margins were actually ~17.4% (not the reported 16.9%). Still, history discourages us from extrapolating the strong margin show and hence we are working with a full year estimate of 16%.

Reiterate BUY!

With every platform (barring the Evoque and new Range Rover) due for a substantial upgrade over the next 2-3 years, Land Rover's product life cycle is at its sweetest spot. For Jaguar, the entry into relatively untapped segments with the F-type and most importantly Baby Jag would not only enable sharp volume growth but also improve margins given the much-needed positive operating leverage. For the domestic business, we seem to be at the trough of the cycle even while street expectations from all segments have reduced disproportionately. In fact, there now appears more scope for positive surprise than negative, which is a good place to be from a stock perspective. Reiterate BUY with a target of INR376 (unchanged).

Source : Equity Bulls

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