BUY on Tata Motors - Firing on all cylinders; raising TP - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities

We remain positive on Tata Motors (link to our upgrade note: With improving outlook, FCF to turn positive), post solid 3QFY21 results. The OEM reported consolidated PAT of Rs 29.4bn (vs. loss QoQ), driven by multi-quarter high margins both at JLR and India. The luxury OEM reported positive FCF of GBP 562mn (GBP 463mn in 2Q), which has resulted in the net automotive debt reducing from Rs 678bn (in 1Q) to Rs 547bn currently. The India PV business performance improved further with margins at 3.8% (vs. 1.6% QoQ). We are raising our sum of the parts-based FY23 target price to Rs 315 as we increase our FY23E estimates by 23%.

3QFY21 financials: (1) Standalone: Revenue grew 35/51% YoY/QoQ to Rs 146bn, led by 22/43% growth in volumes. EBITDA margin at 7.4% surprised positively owing to operating leverage. Adj. net loss came in lower at Rs 5.8bn vs a loss of Rs 10.4/12bn YoY/QoQ. (2) JLR: Revenue at GBP 5.9bn grew 37% QoQ (-22% YoY) due to 39% QoQ (-7% YoY) growth in volumes. EBITDA margin at 15.8% came in at multi-quarter high, driven by Charge+ initiative; favorable fx (GBP 39mn) and provision write-back (GBP55m). PAT grew 3x QoQ to GBP 351mn. (3) Consolidated: an all-round strong performance with 6/55/75% YoY growth in revenue/EBITDA/PAT.

Key highlights: (1) JLR leading the show: For a second consecutive quarter, JLR reported positive FCF at GBP 562mn (GBP 463mn QoQ) and EBITDA margin of 15.8% (at a multi quarter high). This profitability was driven by demand recovery across markets (retails up 13% QoQ), and Charge+ savings (GBP 0.4bn in 3Q, GBP 2.2bn YTD, GBP 2.5bn target for FY21). China retails are up 19% YoY and market share has held up in this key market. The Defender has crossed 5k units/month and has an order bank of 14k units (worth ~3 months of sales). (2) Electrification is key focus area: JLR will be ramping up its EV offerings, which currently account for 53% of sales (12% of this is BEVs + PHEVs). The OEM has written back provisions of GBP55m relating to EU CO2 fines as it has delivered more of EV variants last quarter. (3) India CV sales gaining share: Tata Motors' market share in CVs has improved 210bps over the quarter to 38.9%. Demand is supported by infrastructure, mining and e-com sectors. Segment EBITDA at 8% expanded 580/480bps YoY/QoQ. (3) PV segment growth is ahead of the industry: PV revenues are up 79% YoY as TTMT has gained market share. The segment has reached milestone revenue of Rs 50bn (for the first time) and has reported positive EBITDA margin of 3.8%. The Nexon-EV accounts for 64% of industry's EV volumes. (4) Dynamix capex targets: Due to strong demand in India, TTMT has increased its capital expenditure program to Rs 18.5bn (from Rs 15bn earlier) for FY21. The management will take a pragmatic view of the business and will not hesitate to increase spends if required.

Shares of TATA MOTORS LTD. was last trading in BSE at Rs.322.3 as compared to the previous close of Rs. 279.75. The total number of shares traded during the day was 22854765 in over 164374 trades.

The stock hit an intraday high of Rs. 332.4 and intraday low of 290. The net turnover during the day was Rs. 7036299734.

Source : Equity Bulls

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