Tata Motors - Margins, FCF continue to positively surprise - ICICI Securities

Tata Motors' (TTMT) Q4FY21 operational performance was ahead of consensus estimates with consolidated EBITDA margin at 14.4% (up 444bps YoY), driven by strong performance in domestic PV (~5%)/ CV(~9%) and JLR (15.3%). FCF generation (Q4: Rs102bn) aided net debt reduction (QoQ: Rs 138bn) and conservative FY22 FCF target is >GBP 500mn (excluding one-time restructuring costs). In JLR management remains focussed on capital deployment towards future technologies with low going concern risk while improving core EBIT margins (FY24 target: >7%). TTMT remains the market leader in domestic CV business which we believe would be multi-year growth story (expect >30% CAGR for industry over FY21-24E). On domestic PV, TTMT has surprised investors with market share gains, margin improvement in ICE segment (FY21:>8%) while grabbing customer mind space via EV offerings (e.g. Nexon). Maintain BUY.

- Key highlights of the quarter: Standalone revenues grew ~106% YoY to ~Rs200bn while JLR revenues grew ~21% to ~GBP6.5bn. JLR's EBITDA margin improved 1054bps to 15.3% driven by structural cost reductions as Project Charge+ delivered FY21 cash savings of GBP2.5bn. JLR reported a healthy FCF of GBP729mn in Q4 driven by reduction in structural costs. India PV/CV businesses clocked EBITDA margins at 4.9%/9.1% (both up 110bps QoQ), respectively. India business delivered Rs29.5bn of FCF driven by improved pricing, mix and tight working capital. TTMT booked one-time non-cash write down of EUR952mn related to discontinued models and EUR571mn towards restructuring costs at JLR.

- Key takeaways from concall: Management indicated a) realisations declined in JLR due to shift of product mix towards LR SUV2/3 models in UK and Europe vis-à-vis SUV5 models in China (new year driven) in Q3; b) cost-savings on VME and warranty is likely to cumulatively sustain at <10% levels (8.3% in Q4); in India business, commodity price pressures were overcome through price increase of ~4% in PV and 3.3% in CV and structured cost reductions programs; c) strong response to new Defender 110 with current order book of >20k units, aggregate level order book stands at ~100k units; and d) India PV inventory stood at <10 days and Apr/May'21 is being used to bridge the gap and reduce wait time.

- Maintain BUY: We believe improving domestic PV business/CV upcycle and managements enhanced focus on FCF generation to be debt free by FY23/24 augurs well for investor confidence. We believe reporting separation of PV/CV business aids value discovery. We reiterate our BUY rating on the stock with a revised SoTP-based target price of Rs536 (earlier: Rs457).

Shares of TATA MOTORS LTD. was last trading in BSE at Rs.332.35 as compared to the previous close of Rs. 321.1. The total number of shares traded during the day was 4587490 in over 37495 trades.

The stock hit an intraday high of Rs. 336.55 and intraday low of 324.1. The net turnover during the day was Rs. 1519241962.

Source : Equity Bulls

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