Tata Motors - India business scaling in the right direction - ICICI Securities

Tata Motors' (TTMT) India management on its annual investor day, gave an update on the domestic outlook and strategy. The key takeaways were: a) India CV business growth is likely to be ~38% YoY in FY22 driven by M&HCV segment; b) CV business' revolves around providing superior value to customers (e.g. lower TCO, superior value-added services); c) aim is to consolidate the company's no.3 position in PV segment with new product introductions (two new SUV launches in CY20) equipped with superior features ; d) focus on a collaborative strategy for electrification utilising synergies within the Tata group; management expects EV growth to be driven by personal purchases (e.g. ~90% of Nexon EV customers are already for personal use- refer charts 2-4); e) financial targets are to achieve high single-digit EBITDA margin in PV and double-digit in CV business, and consolidated net debt reduction to negligible levels by FY24. Maintain BUY.

Further highlights of the event:

- TTMT indicated post BS-VI fleets are witnessing improvement in overall TCO/profitability due to superior products even as vehicle prices are up >10% YoY. Increased value-added offerings (e.g. fleet management, uptime guarantee) have aided modernisation and productivity for fleets.

- Internal cost focus remains centered on: a) material cost reduction (annual targets are 4-6%); b) cash cost (~25% reduction in 9MFY21); c) cash conservation (~30% reduction in breakeven levels in 9MFY21).

- PV business is likely to witness expansion in addressable market to ~75% (currently ~60%) post two new SUV launches (Safari-Midsize SUV, Hornbill sub-compact SUV) in CY20. The aim remains to further enhance brand positioning via enhanced efforts on: a) faster adoption of ACES (autonomous, connected, electric, shared); and b) enhanced focus on quality. Management target of leadership in SUVs/EVs reflects its confidence in its existing products and technological capabilities.

- Company is partnering with the Tata group to create an EV ecosystem across: charging infrastructure (Tata Power), Li-ion cells (Tata Chemicals), battery manufacturing (Tata Autocomp), and software services (TCS). Management believes as these efforts aid EV sticker price reduction, EV penetration (driven by personal buyers) is likely to rise to 7-10% of overall sales in 3-4 years.

- Financial targets of high single-digit EBITDA margin in PV and double-digit in CV business have been built around improving mix, strong cost reduction, and operating leverage. Overall deleveraging plan is to be driven by FCF and divestments

Shares of TATA MOTORS LTD. was last trading in BSE at Rs.324.1 as compared to the previous close of Rs. 304.15. The total number of shares traded during the day was 6654359 in over 41969 trades.

The stock hit an intraday high of Rs. 328.8 and intraday low of 308. The net turnover during the day was Rs. 2126962389.

Source : Equity Bulls

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