Tata Motors - When it rains... - Antique

JLR PAT £378m was impacted by a forex loss of £118m (revaluation of USD debt), but still beat our estimate of £344m by 10%. The reason why consol PAT at INR39.45bn trashed our estimate of 25.2bn (consensus 27bn) was because IFRS (JLR) routes this forex loss through the P&L, while IGAAP (Tata Motors consol) adjusts it in the balance sheet. The important number to focus on is JLR EBITDA/EBITDA margin, which at £856m/16.9%, beat our estimate of £652m/14.5%. In our view, the extravagant launch of the new Range Rover Sport (in March'13) would have adversely impacted margins by 50bps during the quarter, and hence JLR adjusted margins were actually ~17.4% (our estimate).

While the operational performance was commendable, we've been tracking JLR long enough to not get completely carried away with these margins, as they tend to be volatile. We continue to like Tata Motors for the sweet phase of JLR's product life cycle coupled with the current period for the domestic business being the trough. Reiterate BUY with a target price of INR376 (INR353 previously).

Acknowledge painful phase-out process of RR Sport... Reiterate BUY!

Going into a big model upgrade (the RR Sport accounts for ~20% of LR volumes), retails of the outgoing model generally collapse, unless there are high incentives (as was noticed when the Range Rover was recently upgraded). However, this is probably seeing the glass as 1/4th empty, as once the painful phase out process is behind, volumes witness a significant uptick. For the domestic business, it wouldn't be right to extrapolate the worst possible cycle. When the MHCV cycle eventually recovers (no reason to dislike the industry structurally), we are certain that domestic margins would bounce back to a respectable high-single digit. We reiterate BUY with a target of INR376 (INR353 previously).

Source : Equity Bulls

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