Tata Motors - Jaguar roars...Land Rover zooms... - LKP Research

Domestic business posts losses at operating level, JLR soars above expectations

Tata Motors consolidated sales were up by 38.7% yoy, and 14.1% qoq in Q3 FY14. JLR performance was the focus area as usual with sales growing by 40% yoy to GBP5.33 bn, and 15.5% qoq as sequentially the volumes went up by 14.1%. On a yoy basis, JLR volumes went up by 22.7% to 116,357 units as most of the geographies showed good traction along with improved sales performance at Jaguar brand (up 35% yoy) and continued resilience at Land Rover (20.3% yoy growth). JLR also posted a very good margin performance with EBITDA margins coming at 17.9% on improved product mix (higher new RR and RR Sports sales contributing ~30% of volumes in Q3), geography mix tilting towards China, despite forex losses coming on the back of adverse currency movement. On the other hand, slowdown in MHCV sales and underperformance of the PV segment led to losses piling up at the domestic business. In Q3 the losses came at EBITDA levels itself as operating leverage reduced on account of volume decline. Volumes in the quarter fell by 36% yoy and 14% qoq thus pulling the sales down by 27% and 12% yoy and qoq respectively. The standalone EBITDA margins were negative 6%, thus posting negative operating profits first time ever in the standalone business. Standalone business was impacted by weak CV cycle, low demand, higher discounts and a dragging PV business. Standalone net profits came in at profit of Rs12.51 bn, which included profit from sale of investment to the tune of Rs 19.5bn. Net profits adjusted for this income was negative at Rs6.56 bn.

Outlook and Valuation

While we do believe that new product development would envisage high capex at JLR since product life cycles are not long, the company is expected to continue its outperformance on the JLR front which constitutes the chunk of their business and was more than 100% of their net profits in Q3. Emerging geographies like South America, China, Russia etc. are expected to drive revenues going forward. New launches such as the Range Rover and RR Sports along with the pipeline of new launches would in our view put up a good volume performance. We have raised our JLR estimates and expect a 15%/15% JLR volume growth in FY14E/15E. We expect FY 15 also to be a weak year for the domestic business considering the delay in the recovery of CV cycle and thus have reduced the volume and margin estimate for it. On the back of expectations of strong JLR margins on China demand, expansion of dealerships over there, buoyant product pipeline, we expect the company to post a strong performance going forward. The increase in estimates on JLR is slightly offset by the domestic business' lowered estimates as a result of which we are maintaining our target price at Rs 443. Maintain BUY.

Source : Equity Bulls

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