Maintain BUY on Tata Motors - A weak quarter on expected lines; 2H recovery at JLR - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities

Tata Motors reported a weak quarter Q1FY22 due to chip shortages. Expectedly, the margin at JLR came in at 9% (-630bps QoQ). However, we expect the production to ramp up in H2FY22 as demand remains encouraging (order backlog at 110k units, ~3 months of sales). India margin though was below estimate (EBITDA margin of 2.5%, -620bps QoQ) as CV volumes were subpar. We reduce our EBITDA estimate by ~3% over FY22-24, EPS estimates by ~13% over FY23/24 to factor in the above and set a revised SOTP-based target price of INR 360, based on Jun-23E earnings. Maintain BUY.

Q1FY22 financials: (1) Standalone: Revenue declined 41% QoQ to INR 119bn, led by a 53/23% drop in CV/PV volumes. EBITDA margin, at 2.5% (-620bps QoQ), disappointed, due to weak profitability at the CV division (EBITDA of 0.1%). Passenger car EBITDA surprised at 4.1% (4.9% QoQ). Adj loss came in at INR -12.5bn. (2) JLR: Revenue declined 24% QoQ due to a 31% fall in volumes. The average realisation improved 10% QoQ to ~GBP 59k. The EBITDA margin came in at 9% (-630bps QoQ, RM ratio expanded 125bps) due to the impact of chip shortages. The division reported a loss of GBP 286mn. JLR incurred a tax charge of GBP 176mn, despite a negative PBT of 110mn as the OEM could not avail set-offs against its deferred tax assets; there was no cash impact. (3) Consolidated: Revenue/EBITDA declined 25/50% QoQ. The OEM reported a PBT loss of INR 25.7bn/PAT loss of INR 44bn due to the higher tax charge.

Key highlights: (1) Supply at JLR to ease in H2FY22: As highlighted earlier by JLR, the semiconductor shortage is likely to impact production in Q2FY22 as well (~90k units in H1FY22). The situation is expected to improve in H2 as supplies increase. The demand is healthy as JLR has an existing order book of 110,000 units, which is ~3 months of sales. Cash flows (-GBP 996mn) were impacted in Q1 due to working capital build-up; however, this will likely reverse in 2H. (2) Market share: While the overall CV market share reduced to 40.5% vs 42.4% in FY21, the share in MHCVs has risen to 62.7% (vs 58.1% QoQ). The PV market share has now reached 10% vs 8.2% in FY21, led by new products. (3) Focus on electric: In the domestic market, Tata has a 77% market share in the nascent EV market (EV penetration is at 3% of the portfolio). The company plans to roll out 10 EV models by 2025. At JLR, BEVs+PHEVs are 8.5% - this will increase in H2 as production ramps up.

Shares of TATA MOTORS LTD. was last trading in BSE at Rs. 291.3 as compared to the previous close of Rs. 293.1. The total number of shares traded during the day was 14370419 in over 25682 trades.

The stock hit an intraday high of Rs. 297.6 and intraday low of 288.7. The net turnover during the day was Rs. 4177453190.

Source : Equity Bulls

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