Tata Motors - JLR accelerates ignoring the domestic brakes!! - LKP Research

Results below expectations on standalone underperformance, JLR outperforms

Tata Motors consolidated sales were up by 8.3% yoy, while falling by 16.3% qoq in Q1 FY14. JLR performance was the focus area as usual with sales growing by 12.6mn to GBP4097 mn, while declining by 19% qoq as sequentially the volumes went down by 22%. On a yoy basis, JLR volumes went up by 8.5% to 90,620 units as geographies like China, UK and ROW showed a good traction along with improved sales performance at Jaguar brand. JLR also posted a very good margin performance with EBITDA margins coming at 16.5% on improved product mix, softening commodities and cost control. On the other hand, slowdown in MHCV sales and underperformance of the PV segment led to losses piling up at the domestic business. Volumes in the quarter fell by 19% yoy and 22% qoq thus pulling the sales down by 17% and 14% qoq and yoy respectively. The standalone EBITDA margins were as miniscule as 2.3% in line with 2% sequentially. Standalone business was impacted by weak CV cycle, low demand, higher discounts and a dragging PV business. On the CV side, even LCV segment started to give up as LCV sales fell by 6.7% yoy. Standalone net profits came in at Rs7.03 bn, which included dividends from JLR of Rs 15bn, excluding which the standalone losses would have piled up to Rs8 bn. Adjusted Net profits at the consol level went down by 51% qoq and 29% yoy to Rs 19bn.

Outlook and Valuation

The company is expected to continue its outperformance on the JLR front which is the chunk of their business. Emerging geographies like South America, China, Russia etc. are expected to drive the revenues going forward. New launches such as the Range Rover launched couple of quarters back and the upcoming new Range Rover Sport along with the pipeline of new launches are supposed to put up a good volume performance. We expect a 14%/12% JLR volume growth in FY14E/15E. We expect some revival in the domestic MHCV business on economic recovery in the sight in the second half of the year or FY 15. However, with short to medium term pain in this business, we are cutting down our earnings estimates by ~10% for both FY 14E/15E. We have brought down the target price now from Rs379 to Rs 354 while maintaining our BUY rating on the stock.

Source : Equity Bulls

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