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Tata Motors (TTMT) - Qtr. Update - Dated - August 07, 2013




Axis Capital Limited


08 Aug 2013





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JLR delivered another quarter of margin surprise (16.5% vs. our est. 15.7% driven by (1) better product mix, (2) higher utilization at Jaguar plant and, (3) favorable forex. We believe margin levers still exist – ramp up of new Range Rover Sports (RRS) sales and strong growth in China post resolution of engine supply issue. Standalone operating performance (adj. loss of Rs 70 bn) was in line. Despite strong show by JLR, we retain our FY14/FY15 EBIDTA estimates to factor in higher discounts on old models (discounts have increased in developed economies). We cut FY14E/15E EPS by 7/9% due to (1) downgrade in standalone business and (2) higher tax rate, amortization in JLR. Maintain BUY with SoTP-based TP of Rs 354 (Rs 373 earlier), implying an upside of 27% from CMP of Rs 279. JLR highlights  Key market outlook ‒ Europe: Demand scenario remains difficult due to general slowdown and intense competition ‒ USA: Benefitting from new launches as US car market is recovering from lows of 2012. Expect new Range Rover Sports to drive sales in near term ‒ China: Expects premium market to grow and JLR to record positive growth (Q1FY14 sales flat YoY)  Q1 incentives: were lower QoQ and YoY due to higher share of new launches (Range Rover and F-Type) and lower discounting on old RRS (unlike old Range Rover last year). However, industry has witnessed some increase in discounting levels  JLR faced engine supply constraints (smaller engines) from Ford early in the quarter and hence wholesales to US and China were impacted (partially offset by higher wholesales in Europe) India  MHCV’s  Discounting: Management indicated discounting has increased sequentially due to aggressive pricing by competitors ‒ Inventory remains under control (3-4 weeks at dealer level) ‒ LCV’s: The segment recorded 10% YoY de-growth in Q1 due to (1) subdued economy and (2) stringent credit appraisal by banks/NBFCs  Cars: The company plans to focus on (1) improving manufacturing process, (2) improving sales effectiveness, and (3) focusing on after sales services Regards, Chirag Shah (Sr VP – Automobiles) Institutional Equity Research Axis Capital Limited Tel: 9122 4325 1148 Ronak Sarda (AVP – Automobiles) Institutional Equity Research Axis Capital Limited Tel: 9122 4325 1137

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