Tata Motors Limited - JLR volume upgrade cycle on course... - Antique

JLR March retail sales at 53,772 units (up 16% YoY/100% MoM) - beat our estimate of 52k. We highlight that the sharp MoM jump is a very typical March (and September) trait as it's the best month for retails in the UK due to the number plate change. UK accounts for ~19% of annual retails, while it accounts for 33/34% of retails in Sep/March.

Post the better than expected retails, we see upside risk to our earlier estimate for March wholesales - to be announced tomorrow; our estimate is 40k units (up 10% YoY/13% MoM); consensus ~38k. Our thesis of JLR volumes surprisingly positively (on the more profitable models) seems to be playing out. We reiterate BUY with a target price of INR353 (unchanged).

March retails beat estimates; wholesales could too...

JLR March retail sales stood at a record high 53,772 units (up 16% YoY/100% MoM). Numbers beat our estimate of 52k and resultantly we see upside risk to our wholesale volume assumption (expected tomorrow) - our estimate is 40k units (up 10% YoY/13% MoM). Wholesale volumes are slightly more relevant to us since that's the number on which JLR realises revenues.

JLR Retail volumesMar-13 Mar-12 YoY (%) Feb-13 MoM (%)
Jaguar 9,856 7,710 28 4,595 114
Land Rover 43,916 38,494 14 22,260 97
Total 53,772 46,204 16 26,855 100

Sharp MoM jump - UK name-plate change effect:

We highlight that the sharp MoM jump (100%) is a very typical March (and September) trait due to the UK number plate change. Buyers in the UK postpone their purchase to Sep/March to have a new series on their vehicle number plate. Resultantly, majority of UK retails are compressed between these two months (March and Sep combined account for ~25% of annual retails). UK March retail at 17,784, were up 10x MoM; 14% YoY. UK accounted for ~19% of FY13 annual retails (~20% in FY12), while it accounts for ~33-34% of retails in Sep/March.

JLR product life cycle in sweet spot... Reiterate BUY!

In our view, an exciting phase in the product life cycle can be the biggest driver for volume upgrades for an Auto company. With every platform (barring the recently launched Evoque and new Range Rover) due for a substantial upgrade over the next 2-3 years, Land Rover's product life cycle is at its sweetest spot. For Jaguar, the entry into relatively untapped segments with the F-type and most importantly Baby Jag would not only enable sharp volume growth but also improve margins given the much-needed positive operating leverage.

For the domestic business, while the outlook is weak currently, street expectations from the same have reduced more than proportionately. From a stock perspective, this is a good place to be. We reiterate our BUY recommendation with a target price of INR353.

Source : Equity Bulls

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