Tata Motors: Riding on JLR

India Infoline News Service | Mumbai |

Over the past 30 months JLR has given an average yoy growth in volumes of 25.5%.

CMP Rs363, Target Rs425, Upside 17.1%

Tata Motors delivered a strong performance in Q3 FY14 wherein the margins and profits for consolidated entity were much higher than our and street estimates. The performance was yet again driven by strong show at JLR. We believe that the momentum is here to sustain for JLR and standalone operations should recover in H2 FY15. We upgrade our rating to BUY from MP as valuations are attractive at P/E of 6.4x on FY16E EPS.


JLR – sustained growth ahead

JLR has seen a strong momentum in volumes and financial performance for the past many quarters. This we believe is likely to sustain owing to 1) slew of new model launches and upgrades for existing models expected over the next couple of years, 2) deepening presence in high growth high profit emerging markets, 3) sourcing of materials from low cost countries like China and 4) sustained large investments in R&D enabling future growth. We expect JLR to see a 15% volume CAGR and OPM to remain over 16% in next couple of years.


Standalone operations at nadir

Tata Motors standalone operations have registered losses at PAT level (excluding dividend from JLR) for four consecutive quarters and Q3 FY14 was no exception (excluding tax write back and profit on sale of investments). This has been driven by sharp fall in volumes for its entire automobile portfolio. For passenger cars, new models with an entirely new engine and inputs from JLR R&D team are expected to help revival. CV volumes should pick up following some economic and political stability in H2 FY15.


Valuations attractive post recent correction

Tata Motors has seen a correction of 10% in the past two months on the back of marked slowdown in its domestic sales. Additionally news flow from JLR regarding higher capital expenditure leading to negative cash flows for FY15 added to the negative sentiment. While we expect revival in its domestic performance in the medium term, negative cash flows for FY15 does not concern us much as over the longer term we expect it to generate robust free cash flow. Valuations at 6.44x FY16E P/E is attractive and hence we are upgrading our recommendation to BUY from Market Performer.


Financial summary
Y/e 31 Mar (Rs m)
FY13
FY14E
FY15E
FY16E
Revenues
1,888,176
2,261,533
2,515,221
2,835,140
yoy growth (%)
14.0
19.8
11.2
12.7
OPM (%)
13.0
15.4
15.8
15.7
Reported PAT
98,926
139,706
164,959
188,516
yoy growth (%)
(26.8)
41.2
18.1
14.3
EPS (Rs)
31.6
42.0
49.6
56.7
P/E (x)
11.5
8.7
7.3
6.4
Price/Book (x)
3.2
2.4
1.9
1.5
EV/EBITDA (x)
6.3
4.2
3.7
3.0
Debt/Equity (x)
1.4
1.0
0.7
0.5
RoE (%)
29.8
31.8
28.6
25.5
RoCE (%)
20.2
25.3
26.6
27.0
 Source: Company, India Infoline Research
BSE 406.85 1.70 (0.42%)
NSE 406.70 1.60 (0.39%)

***Note: This is a NSE Chart

 

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