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MOSL: TATA MOTORS (Buy) - Above est, Superior JLR performance offsets weak S/A




Motilal Oswal Securities Ltd.


12 Feb 2014





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Tata Motors (TTMT IN, Mkt Cap USD17.7b, CMP INR374, Buy) Jinesh K Gandhi (Jinesh@MotilalOswal.com) / Chirag Jain (Chirag.Jain@MotilalOswal.com) Strong JLR performance more than offsets weak India business; JLR outlook remains healthy TTMTs 3QFY14 performance was above estimate driven by JLRs strong show, while S/A operating performance was sharply below our estimate. Consolidated revenue grew 39% YoY (+12% QoQ) to INR639b (est. INR604b), with EBITDA margin of 15.6% (est. 14.5%). Adj. PAT stood at INR49b, significantly higher than the estimate of INR32.7b, driven by the beat at JLR. Management call highlights: Healthy demand in JLR across products, mainly for Range Rover and Range Rover Sport (have a waiting period of four to six months in major markets). JLRs EBITDA margin would get support from continued improvement in product and geographical mix, with operating leverage offset by strength in GBP (impact of strong GBP would be deferred due to hedges). Baby Jag can potentially increase Jaguar volumes by 3-4x. So while being a lower gross margin product, operating leverage can result in reasonable EBITDA margin. Management indicated high capex (as percentage of sales) at ~15-16% for next two to three years, post which it should normalize to 10-12% levels (in line with peers). Thus, we increase the capex estimates. S/A performance expected to remain weak for the next few quarters, reflecting the macro-economic challenges. Upgrade EPS up to 3.5% driven by JLR, maintain Buy We upgrade FY15E/16E consolidated EPS driven by higher JLR volumes and realization, which more than offsets higher losses in India business at ~INR16.7b/INR7.7b (v/s earlier est. of ~INR5.6b/INR3b). TTMT trades at 7.4x/6.0x FY15E/16E consolidated EPS. DVR trades at 4x/3.7x FY15E/16E consolidated EPS. Buy with a TP of INR515 (FY16E SOTP-based) for ordinary shares and INR258 for DVR (~45% discount to TP for ordinary shares).

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