Tata Motors Limited - More of the same! - 1QFY14 Results Review - Antique

The trend for TTMT results is getting predictable (in a good way). Again, JLR positively surprised, while domestic business negatively surprised. Given that we are positive on TTMT, we have no complaints about this trend, because it is JLR that will make or break the stock. JLR sales/EBITDA/PAT were 2%/9%/16% higher than estimated. In a seasonally weak quarter, margins at 16.5% (up ~200bps YoY) were commendable. This ~200bps margins improvement can be broken up between ~150bps (for mix) and ~50bps (for currency). It also calls for an upgrade given that product mix (the mother of all margin catalysts) will only get better. We were a little worried about the fact that JLR was FCF negative to the tune of £341m (primarily due to adverse working capital changes eating away £315m), but the management guided that their inventory cycle was temporarily disrupted by way of the new Range Rover Sport stuck in the pipeline (produced, but yet to reach dealerships) and hence re-assured that this would normalize next quarter. We'll take their word for it for now, but would be watchful of how working capital trends.

We tweak our numbers marginally downwards as we assume bear-case for the domestic business (model it to remain loss making in FY15 as well). However, the upgrade in JLR estimates more than makes up for it. Reiterate BUY with a target price of INR358 (28% upside).

Source : Equity Bulls

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