BUY Tata Motors - Wholesale volume up 13% yoy in August 2012 - BRICS

Tata Motors' JLR sales (wholesale) for August 2012 were less that estimated at 24,060 units up 13% yoy (down 11% mom). Land Rover sales of 21,100-up 18% yoy (down 8% mom)-helped pull up overallsales as Jaguar sales declined 13% yoy and 27% mom to 2,960 units.

Monthly volume lower than expectations: Over the last three years, average sales in Q2 have contributed 22% of JLR's annual volume, while Q4 contributed 31%. Using this trend as a guideline, one could estimate monthly sales of 26,000 units in Q2. JLR's August 2012 sales of 24,060 units are below trend.

YTDFY13, JLR reported 31% yoy growth at 134,433 units - Jaguar's sales were down 1.7% at 18,798 units while Land Rover grew 39% to 115,635 units.

MoM growth slows as UK gears for plate change

US - luxury car sales slows, PV sales maintain rhythm

Passenger vehicle sales beat street expectations and posted 28% yoy, 12% mom growth, while luxury car sales grew slower at 24% yoy. Growth in passenger car segment has been attributed to an increase in pickup truck sales, new models and pent-up demand. The only company that reported a decline in sales was BMW, down 19% to 16,835 vehicles. JLR grew at a faster clip than the luxury market in the country. Jaguar posted strong 27% yoy, while land rover maintained its 30%+ runrate, up 33% yoy.

UK - JLR grew faster than PVs and luxury segment

As motorists in UK anticipate the arrival of the new 62-plate in September, August typically contributes a small share (3%) of new car sales in the year. Registrations in September account for 17% of the annual total - traditionally the second largest volume month after March. Keeping this in mind, passenger car sales in UK reported flat growth yoy in August, at 59,433 units but were down 60% mom. JLR however posted 35% yoy growth, well ahead of luxury car sales, which declined 2.4% yoy.

Russia - Luxury outperforms

Russia reported its best ever August passenger car sales despite recent hikes in household utility costs, and a widespread expectation among consumers that prices of imported cars would drop following WTO entry. Luxury car sales grew at a faster clip than passenger vehicles, up 30% yoy. Jaguar Land Rover posted 53% growth yoy at 1,700 units, lead by Land Rover sales.

Valuation

We believe JLR's performance will continue to drive Tata Motors' stock as it contributes 75% of revenue and 90% of profit. While volume growth in Q3 and Q4 may be augmented by success of new Range Rover and increased consumer spending induced by QE3 and Euro bond sales, we have not included upsides from these in our valuation. We value the standalone business at Rs37 per share, 12x our FY13 (earlier 13x) core earnings estimate, and JLR at 7x FY13 earnings (after adjusting for capitalisation for product development) at Rs304 per share. We assign 20% discount to investments and subsidiaries (Rs264 per share) to arrive at a SOTP-based target price of Rs299 pershare. Maintain Buy.

Source : Equity Bulls

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