Tata Motors - All business verticals improving in tandem - ICICI Securities

Tata Motors' (TTMT) Q3FY21 operational performance beat consensus estimates with consolidated EBITDA margins at 14.8% (up 444bps YoY); driven by strong performance across domestic PV/CV and JLR. Management remains focussed on FCF generation (Q3: Rs79bn) and thereby aiding net debt reduction (QoQ: Rs 68bn). Management re-iterated its hard (ambitious) target of turning net debt free by FY24. Management also laid out a strong market share target in domestic PV's of >10% (9MFY21:7.8%) driven by new SUV launches (e.g. Safari, Hornbill). TTMT remains the market leader in CV business which is witnessing gradual recovery and we expect the industry to clock >30%CAGR over FY21-24. JLR's key mointorables: a) progress on electrification (BEV+PHEV share currently ~12%), b) volume ramp up led by new products/key refreshes (e.g. Defender). Maintain BUY.

- Key highlights of the quarter: Standalone revenues grew ~35% YoY to ~Rs146bn while JLR revenues declined 6.5% to ~GBP6bn. JLR's EBITDA margin improved 506bps to 15.8% driven by structural cost reductions. Project Charge+ delivered recurrent cash savings of GBP0.4bn in Q3FY21. JLR reported a record FCF of GBP562mn driven by tight control on working capital. India PV/CV business both clocked positive EBITDA margins at 3.8%/8% respectively. India business delivered Rs22bn of FCF driven by better pricing, lower discounts and tight working capital.

- Key takeaways from concall: Management indicated: a) Realizations improvement in JLR was aided due to shift of mix towards Land Rover (84% vis-a-vis 78% YoY), higher regional contribution of China and North America; b) cost-savings on VME and warranty is likely to cumulatively sustain at ~<10% levels (prior to Project charge this was >17%); in India business, management expects to overcome commodity price pressures via pricing increases, product mix and structured cost reductions programs; c) BEV+PHEV contributed ~30% sales in UK+EU for Q3; there is strong response to new Defender 110 as current orderbook remains more than 3-months of sales; launch of Defender 90 is expected to aid volumes further in FY22; and d) capex for India business in FY21E likely to be at ~Rs18.5bn (higher then target of Rs15bn) due to accelerated demand in domestic PVs.

- Maintain BUY: We believe enhanced focus on FCF generation coupled with improving domestic business positioning, outlook is likely to aid investor confidence. We believe reporting separation of PV/CV business could aid value discovery. We maintain our target JLR multiple at 2.2x (rollover into FY23E) and reiterate our BUY rating on the stock with a revised SoTP-based target price of Rs325 (earlier: Rs215).

Shares of TATA MOTORS LTD. was last trading in BSE at Rs.262.6 as compared to the previous close of Rs. 266.85. The total number of shares traded during the day was 10077046 in over 68317 trades.

The stock hit an intraday high of Rs. 278.85 and intraday low of 260.6. The net turnover during the day was Rs. 2729493914.

Source : Equity Bulls

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