Reiterate ADD on Tata Motors - Volatile environment - ICICI Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities.

In 1QFY21, Tata Motors reported a loss of Rs 84bn due to the impact of the lockdown on the India business and at JLR. The silver lining was that CJLR (China JV) has broken even this quarter as retails in China recovered sharply. Tata Motors is continuing with its cost-cutting initiatives (Charge+ savings target is raised to GBP 2.5bn for FY21 from GBP 1.5bn earlier). The company is moving ahead with the subsidiarisation plans for the India passenger car business. Geopolitical uncertainties will partially offset the improving outlook, in our view. Reiterate ADD.

1QFY21 financials: (1) Standalone: Revenue declined 80% YoY due to a similar drop in volumes. EBITDA loss came in at Rs 7bn due to negative op-lev. Net loss was at Rs 21.2bn. (2) JLR: Revenue declined 44% YoY, in line with our estimates, owing to a 53% drop in volumes (ex-CJLR). JLR reported an EBITDA of 3.5% (aided by favourable hedge reserves and furlough related benefits from the UK government). However, the division reported a PBT/PAT loss of GBP 413/648mn. CJLR achieved breakeven with an EBITDA margin of 9.8% and PAT of GBP 1mn. (3) Consolidated: Revenue at Rs 319bn declined 48%. EBITDA margin at 5.4% (vs 5.9% QoQ) was a positive surprise. Adj. net loss came in at Rs 84.2bn owing to higher tax (due to deferred tax charge of GBP 235mn related to the reversal of previous losses).

China-an early recovery: While JLR's global retails were down 42%, China Land Rover's retails were up +12%. Most countries are now witnessing a pick-up in volumes. Cost savings at JLR: Charge+ gained momentum with savings of GBP 1.2bn in 1Q. Targets are enhanced to GBP 6bn (earlier GBP 5bn). 1Q FCF at negative GBP 1.5bn was better than estimates.

Seeking partner for PV business: Tata Motors is moving ahead with its plans for subsidiarisation of the local car business. This should happen in a time frame of 9-12 months and will lower the capital intensity for the India business. The segment assets of this division are Rs 167bn.

Maintain ADD: We set a revised Jun-22 SOTP based TP of Rs 118. We value the India business at 9x EV/EBITDA, JLR at 2x EV/EBITDA and the China JV at 8x PE (which has surprised on the upside). Key risks: Earlier-than-expected stake sale of the PV business and an increase in geopolitical risks.

Shares of TATA MOTORS LTD. was last trading in BSE at Rs.115.5 as compared to the previous close of Rs. 111.4. The total number of shares traded during the day was 4145395 in over 15392 trades.

The stock hit an intraday high of Rs. 117.65 and intraday low of 111.95. The net turnover during the day was Rs. 476055754.

Source : Equity Bulls

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