Tata Motors - JLR's Retail Volume Grows 25% in Nov'13 - Karvy

MCap: US$18,142mn; CMP: Rs 378; TP: Rs 462

Tata Motors-owned Jaguar Land Rover (JLR) recorded very strong volume performance in Nov'13. Company's monthly retail volume grew by 25% Y/Y to 37,403 units in Nov'13. Jaguar's volume rose 55% Y/Y to 6,244 units, while Land Rover grew by 20.5% Y/Y to 31,159 units. Key growth driver in the month was Jaguar XF (up by 39.4% Y/Y), Jaguar XJ (up by 62% Y/Y), Defender (up 27% Y/Y) and incremental volumes of New RR Sports at 6,833 units in Nov'13 as against 4,909 units of old RR Sports during Nov'12. On YTD basis, JLR's volume rose 19.2% Y/Y to 268,867 units in YTD14. Jaguar was up by 48% Y/Y to 49,477 units and Land Rover was up by 14.2% Y/Y to 219,390 units during Apr-Nov'13.

Region wise: North America and China recorded spectacular growth of 37.5% Y/Y and 41.8% Y/Y to 6,657 units and 9,751 units respectively in Nov'13. Moreover, Asia pacifi c and other markets also grew by 32% Y/Y and 42% Y/Y to 1,882 units and 6,582 units respectively in Nov'13.

Capex Plan: For FY15, JLR has indicated total capex (including R&D) of ~GBP3.5-3.7b (v/s our est. of GBP2.5b), ~30% increase over FY14 guidance of GBP2.7b. Out of total spending ~40% would be for R&D and 60% for capex. Key areas of capex are: a) Product Development towards new vehicle and refreshment of existing models, b) New powertrains & technologies including regulatory requirements, c) Increase in manufacturing capacity in UK (by ~70,000 units annually), d) China investment in JV with capacity of 130,000 units annually and its latest announcement of Brazil plant with initial capacity of ~24, 000 units annually with investment of GBP240m. Management reiterate its long term capital spending target of 10-12% of revenues, in short term it would be higher to capitalize on growing luxury car market coupled with establishing itself with other leaders like BMW, Audi, Daimler etc.

Our View: JLR is in the process of expanding geographical reach along with launch of new products at regular interval. JLR's indication of increasing capex indicates Company's long term vision of expanding foot print and establishing brand name along with its peers. Moreover, local manufacturing would cushion margins of the Company going forward. Its higher capex plan is above our as well as street's estimates, though we see it as an investment towards profitable growth, which is already visible in Company's improving monthly volumes. This would put some pressure on Company's cash flow over FY14-FY16, however, we believe that it will turn into better business performance of the Company, hence the healthy fi nancials going forward. We maintain our positive view on the Company. We believe that these initiatives would aid the Company's volumes as well as help maintaining healthy margins going forward. We reiterate our "BUY" recommendation on Tata Motors with TP of Rs 462 per share.

Source : Equity Bulls

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