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Automobiles September 10, 2014
Tata Motors
Bloomberg: TTMT IN Reuters: TAMO.BO
BUY
Institutional Equities
India Research
COMPANY UPDATE
Recommendation
CMP: Rs517
Target Price: Rs655
Previous Target Price Rs560
Upside (%) 27%
Stock Information Market Cap. (Rs bn / US$ mn) 1,578/26,001
52-week High/Low (Rs) 532/320
3m ADV (Rs mn /US$ mn) 2,960/48.8
Beta 1.1
Sensex/ Nifty 27,265/8,153
Share outstanding (mn) 2,694
Stock Performance (%) 1M 3M 12M YTD
Absolute 19.5 15.3 62.7 37.4
Rel. to Sensex 11.0 8.2 15.0 6.7
Performance
Source: Bloomberg
Earning Revision
(%) FY15E FY16E
Revenue 0.0 3.7
EBITDA 0.7 8.6
EPS 1.0 6.9
Source: Karvy Institutional Research
Analysts Contact Mitul Shah
+91 22 6184 4312
mitul.shah@karvy.com
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Sensex (LHS) Tata Motors (RHS)
Ready to Race…New Launches at JLR to Drive
Profitability; M&HCVs - All Set for Next Bull Run
Tata Motors’s (TTMT) is expected to witness strong traction across the
business with new launches from JLR and domestic MHCV bottoming out.
JLR unveiled its small Jag namely Jaguar XE range at London with an
indicative price of £27,000. This is the lightest and stiffest Jaguar saloon made
up with light weight aluminum structure and having better fuel efficiency.
Moreover, its pricing is competitive to take on competition with value added
features. It would compete with BMW 3 series, Audi A4 and Merc-C Class.
Company plans its commercial launch around beginning of 2015. This would
be the first vehicle to have Ingenium engine, indigenously developed by JLR at
its UK factory. Company is projecting XE as performance car, being most fuel
efficient Jaguar car ever produced. We expect new XE to help improve market
shares in small luxury saloon segment and would also drive overall volumes
of Jaguar family. It’s the first volume product from Jaguar. It may clock
monthly volumes of ~4,000 units and may further surprise on volumes. We
believe that price cut in Chinese market would bring healthy volumes for JLR,
while tax benefit from its local assembly plant in China would be more than
enough to compensate the impact of price cut in FY16. We believe that TTMT’s
profitable business growth at JLR justifies its high capex.
Domestic Business to Revive Strongly: Tata Motors has begun witnessing
volume improvement in PV as well as CV segment recently. Its newly
launched Zest has received good initial response, while M&HCV segment
reported a YoY growth for the first time in Aug’14 in last 2.5 years. During
past CV cycle, industry declined 20% in down cycle and bounced back with
~35% growth. In current cycle, MHCVs declined at CAGR of 25% over FY12-
FY14, which is steeper than previous cycle, indicates much stronger bounce
back in new up cycle. However, Due to shift in higher tonnage, we expect
lower growth of 20% for the industry. M&HCV volumes remained stable over
past few months citing bottoming out phase, ahead of strong revival. We
expect margin improvement in standalone operations, backed by CV up-cycle.
We increase our SOTP based target price from Rs 560 to 655 per share, valuing
TTMT’s standalone business at Rs. 100, JLR at Rs. 566 and other subsidiaries at
Rs. 38 based on FY16E EBITDA, post excluding net debt of Rs. 50 per share.
We reiterate our “BUY” on Tata Motors.
Key Financials (Consolidated)
Y/E Mar (Rs. mn) FY12 FY13 FY14 FY15E FY16E
Net Sales 1,635,934 1,860,376 2,301,025 2,940,877 3,275,052
EBITDA 202,502 217,673 321,065 437,498 526,747
EBITDA margin (%) 12.4 11.7 14.0 14.9 16.1
Adj. Net Profit 143,505 103,286 147,276 191,735 220,981
EPS(Rs.) 43.2 32.1 45.8 59.5 68.6
RoE (%) 53.6 28.5 28.0 25.5 23.2
RoCE (%) 28.4 17.1 18.1 17.2 16.9
PER (x) 12.0 16.1 11.3 8.7 7.5
EV/ EBITDA 9.1 8.6 6.0 4.5 3.8
Source: Company, Karvy Institutional Research
2
September 10, 2014
Tata Motors
Outlook & Valuation
To factor in higher than expected XE volumes, we increase our JLR volume
estimates by 7.5% to 572,356 units in FY16E, while in view of lower pricing of XE
and product mix, we increase our consolidated revenue estimate by 3.7% for
FY16E. In view of better margins at JLR, we raise our EPS estimates by 1%/7% for
FY15/FY16. Accordingly, we increase our SOTP based target price from Rs 560 to
Rs 655, valuing TTMT’s standalone business at Rs. 100, JLR at Rs. 566 and other
subsidiaries at Rs. 38 based on FY16E EBITDA, post excluding net debt of Rs. 50
per share. We reiterate our “BUY” on Tata Motors.
Exhibit 1: Product mix – Tata Motors
Source: Karvy Institutional Research, Company
Exhibit 2: Market Share Trend – Domestic M&HCV
Source: Karvy Institutional Research, SIAM
M&HCV segment reported a YoY growth for the first time in August’14 in last 2.5
years. During past CV cycle, industry declined for 20% in down cycle and bounced
back with ~35% growth. In current cycle, MHCVs declined at CAGR of 25% over
FY12-FY14, which is steeper than previous cycle, indicates much stronger bounce
back in new up cycle. However, due to shift in higher tonnage, we expect bounce
back at lower pace of 20% for the M&HCV industry. As evident in below chart,
industry volumes remained stable over past few months citing bottoming out
phase ahead of strong revival.
Exhibit 3: Domestic M&HCV Industry Bottoming Out
Source: Karvy Institutional Research, SIAM
15 18 21 21 22 22 21 19 20 17 19 22 23 26 29 28 27 28
46 49 47 44 42 42 43 43 42 42 45 45 43 39 39 41 40 43
20 20 19
17 17 16 18 19 19 19 17 16 13 11 13 13 14 13
18 13 13 19 20 19 17 19 20 22 20 17 22 24 20 18 19 16
0
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100
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r-13
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Au
g-1
3
Sep
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No
v-1
3
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Jan
-14
Feb
-14
Mar
-14
Ap
r-14
May
-14
Jun
-14
M&HCV LCV Utility PV/Cars
(%)
0
10
20
30
40
50
60
70
Jan
-13
Feb
-13
Mar
-13
Ap
r-13
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-13
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Au
g-1
3
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No
v-1
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Dec
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Jan
-14
Feb
-14
Mar
-14
Ap
r-14
May
-14
Jun
-14
Ashok Leyland Tata Motors Eicher Motors Others
(%)
-100
-50
0
50
100
150
0
20000
40000
60000
80000
100000
120000
M&HCV Volume YoY Growth (RHS)
(%) Units M&HCV Bottoming out - Ready for
Next Bull Run
3
September 10, 2014
Tata Motors
JLR’s Geographical Pricing
Exhibit 4: JLR’s Average Selling Price per vehicle in Diff Geographies
Source: Company, Karvy Institutional Research
JLR’s Market-Mix
Exhibit 5: JLR’s Geographical Mix
Source: Company, Karvy Institutional Research
Exhibit 6: JLR’s Geographical Mix
Source: Company, Karvy Institutional Research
Source: Company, Karvy Institutional Research
Source: Company, Karvy Institutional Research
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
UK North
America
Europe China ROW Overall
FY12
FY13
FY14
(In GBP)
UK
17.9%
North
America
16.2%
Europe
19.8%
China
21.2%
Asia Pacific
6.5%
ROW
18.3%
Q1FY14 UK
15.9%
North
America
15.7%
Europe
18.1%
China
29.5%
Asia Pacific
6.0%
ROW
14.7%
Q1FY15
UK
18%
North
America
18%
Europe
21%
China
21%
Asia Pacific
5%
ROW
17%
FY13 (12M) UK
18%
North
America
17%
Europe
19%
China
24%
Asia Pacific
5%
ROW
17%
FY14 (12M)
Even after moderating for
past 2 years, JLR’s Average
Selling Price in China yet
commands 43% premium
over its overall average
pricing and would continue
commanding premium…
Commands 43% Premium
4
September 10, 2014
Tata Motors
JLR’s Volumes Analysis
Exhibit 7: Quarterly Wholesale Volume
Source: Company, Karvy Institutional Research
Exhibit 8: Yearly Wholesale Volume
Source: Company, Karvy Institutional Research
Exhibit 9: Jaguar Product Mix- Quarterly
Source: Company, Karvy Institutional Research
Exhibit 10: Land Rover Product Mix - Quarterly
Source: Company, Karvy Institutional Research
Exhibit 11: Jaguar Product Mix –Yearly
Source: Company, Karvy Institutional Research
Exhibit 12: Land Rover Product Mix –Yearly
Source: Company, Karvy Institutional Research
19
72
91
20
96
115
-
20
40
60
80
100
120
140
Jaguar Land Rover Total
Q1FY14 Q1FY15
('000 units)
58
314
372
79
351
430
-
100
200
300
400
500
Jaguar Land Rover Total
FY13 (12M) FY14 (12M)
('000 units)
10 10
5 4
1 1
3 4
-
5
10
15
20
25
Q1FY14 Q1FY15
XF XJ XK Others
19 20 ('000 units)
7 - 11
10
13 16
27 32
10 14
-
50
100
150
Q1FY14 Q1FY15
Range Rover Sport Discovery Range Rover
Defender Freelander Range Rover Evoque
New Range Rover New Range Rover Sport
96 72 ('000 units)
38 47
16
19 4
4 0
10
-
20
40
60
80
100
FY13 (12M) FY14 (12M)
XF XJ XK Others
58
79 ('000 units)
57 9
44
45
14
0
15
16
52
56
116
121
16 46
-
100
200
300
400
FY13 (12M) FY14 (12M)
Range Rover Sport Discovery Range Rover
Defender Freelander Range Rover Evoque
New Range Rover
351 314 ('000 units)
5
September 10, 2014
Tata Motors
Change in Estimates
Exhibit 13: Key Financials - JLR
Y/E March (Rs. mn)
FY15E FY16E Comments
New Old %
change New Old
%
change
Standalone Volume
(units)
547,186
547,186
-
685,560
685,560
-
JLR Volumes (Units) 482,344 482,344 - 572,356 532,283 7.5 Incorporating higher volumes of Jaguar XE
Net revenues 2,940,877 2,940,877 - 3,275,052 3,159,597 3.7 Lower ASP of XE, hence lower growth in Revenues
EBIDTA 440,341 440,682 (0.1) 526,747 485,150 8.6 Expect better margins for standalone business.
In domestic operations, MHCV business benefits margins
EBIDTA margin (%) 15.0 15.0 - 16.1 15.4 73bps Lower discount and control on promotional expenses in domestic
business in FY16E
Adj. Net Profit 193,782 193,610 0.1 220,981 206,718 6.9
EPS (Rs.) 60.1 60.1 0.0 68.6 64.1 7.0
Source: Karvy Institutional Research
Exhibit 14: SOTP Valuation
Y/E Mar (Rs mn)
Old
Multiple
New
Multiple Measure EBITDA FY16E Value/Share Old Values
Tata Motors Standalone
6.0 8.5 EV/EBITDA FY16E 37,967 100 61
JLR GBP
4,653
JLR INR 4 4 EV/EBITDA FY16E 455,955 566 533
Other Business
EV/EBITDA FY16E 32,825 38 28
Net Debt
159,535 50 63
Target price
655 560
Source: Company, Karvy Institutional Research, Note: We assign historical mean EV/EBIDTA multiple of 8.5x to standalone business.
Exhibit 15: Key Financials - JLR
GBP Mn FY12 FY13 FY14 FY15E FY16E
Volumes (Units) 314,433 372,062 429,779 482,344 572,356
Net Revenue 13,511 15,784 19,386 22,154 26,604
EBITDA 2,026.3 2,339.0 3,393.0 4,040.5 4,653
EBITDA margin 15.0 14.8 17.5 18.2 17.5
PBT 1,572 1,675 2,501 2,951 3,198
PAT 1,545 1,214 1,879 2,213 2,335
Source: Company, Karvy Institutional Research
6
September 10, 2014
Tata Motors
Financials
Exhibit 16: Profit & Loss- Consolidated
Y/E Mar (Rs.mn) FY12 FY13 FY14 FY15E FY16E
Net revenues 1,635,934 1,860,376 2,301,025 2,940,877 3,275,052
Operating expenses 1,433,433 1,642,703 1,979,960 2,500,536 2,748,305
EBIDTA 202,502 217,673 321,065 440,341 526,747
EBIDTA margin (%) 12.4 11.7 14.0 15.0 16.1
Other income 26,270 35,117 34,423 9,167 10,293
Interest 29,822 35,533 47,338 44,037 43,964
Depreciation 56,254 75,693 110,782 135,002 184,799
Profit Before Tax 135,339 136,335 188,661 271,408 308,277
Tax (400) 37,710 47,648 76,065 86,318
Minority Interest 823 837 595 268 301
Profit from Associates 249 1,138 (537) (616) (678)
Reported Net Profit 135,165 98,926 139,881 194,458 220,981
Net Margin (%) 8.3 5.3 6.1 6.6 6.7
Adjusted Net Profit* 143,505 103,286 147,276 193,782 220,981
Adj. Net Margin (%) 8.8 5.6 6.4 6.6 6.7
Source: Company, Karvy Institutional Research,
Note: We have not factored in any tax credit effect on estimated financials.
Exhibit 17: Balance Sheet- Consolidated
Y/E Mar (Rs mn) FY12 FY13 FY14 FY15E FY16E
Equity capital 6,348 6,381 6,438 6,438 6,438
Reserves & surplus 325,152 381,331 649,597 836,644 1,050,215
Shareholders funds 331,499 387,712 656,035 843,082 1,056,653
Minority Int. 3,071 3,705 4,207 4,475 4,776
Total Loans 387,041 437,223 549,545 549,545 549,545
Deferred tax liability -23,743 -24,094 -7,748 -7,748 -7,748
Total Liabilities and Equity 697,869 804,545 1,202,038 1,389,354 1,603,225
Gross block 948,990 1,088,309 1,429,755 1,919,359 2,310,916
Depreciation 495,125 515,048 688,154 925,093 1,121,994
Net block 453,865 573,261 741,601 994,266 1,188,922
Capital WIP 159,458 184,177 332,626 228,000 237,120
Investments 89,177 90,577 106,867 117,247 128,659
Inventory 182,160 209,690 272,709 308,285 338,832
Debtors 82,368 109,427 105,742 159,456 177,430
Cash & Bank Bal 182,381 211,127 297,118 239,879 216,776
Loans & Advances 259,023 289,055 319,850 436,512 485,714
Current Assets 705,933 819,299 995,419 1,144,133 1,218,752
Sundry Creditors 366,863 447,801 573,157 685,078 752,960
Other Current Liability 343,701 414,968 401,317 409,214 417,268
Current Liability& Provisions 710,564 862,769 974,474 1,094,292 1,170,228
Net current assets -4,632 -43,470 20,945 49,841 48,524
Total Assets 697,869 804,545 1,202,038 1,389,354 1,603,225
Source: Company, Karvy Institutional Research
7
September 10, 2014
Tata Motors
Exhibit 18: Cash Flow Statement- Consolidated
Y/E March (Rs. in mn) FY12 FY13 FY14 FY15E FY15E
EBIT 146,248 141,980 210,283 305,338 341,948
Other Income 26,270 35,117 34,423 9,167 10,293
Depreciation & Amortisation 56,254 75,693 110,782 135,002 184,799
Interest paid(-) (29,822) (35,533) (47,338) (44,037) (43,964)
Dividends paid(-) (14,743) (7,427) (7,504) (7,411) (7,411)
Tax paid(-) 400 (37,710) (47,648) (76,065) (86,318)
Extra Ord Income (7,357) (5,229) (8,708) 940 0
Operating Cash Flow 177,250 166,891 244,290 322,935 399,348
Change in Working Capital 88,534 67,584 21,576 (86,135) (21,786)
Cash flow from Operations 265,784 234,475 265,866 236,800 377,562
Capex (198,196) (219,808) (427,570) (283,042) (388,575)
Strategic Investment 171 (762) 3,618 (77) (78)
Non Strategic Investment (63,905) (638) (19,907) (10,304) (11,334)
Cash flow from Investing (261,931) (221,208) (443,860) (293,422) (399,987)
Change in borrowing 83,419 50,182 112,322 0 0
Others (18,987) (34,704) 151,663 (616) (678)
Cashflow from Financial Activities 64,432 15,478 263,985 (616) (678)
Change in Cash 68,285 28,745 85,991 (57,238) (23,103)
Opening cash 114,096 182,381 211,127 297,118 239,879
Closing cash 182,381 211,127 297,118 239,879 216,776
Source: Company, Karvy Institutional Research
Exhibit 19: Key Ratios
Y/E Mar FY12 FY13 FY14 FY15E FY16E
Revenue Growth 35.6 13.7 23.7 27.8 11.4
EBITDA Margin 12.4 11.7 14.0 15.0 16.1
Net Profit Margin 8.8 5.6 6.4 6.6 6.7
ROCE (%) 28.4 17.1 18.1 17.4 16.8
ROE (%) 53.6 28.5 28.0 25.7 23.2
Source: Company, Karvy Institutional Research
Exhibit 20: Valuation Parameters
Y/E Mar FY12 FY13 FY14 FY15E FY16E
EPS( Rs) 43.2 32.1 45.8 60.1 68.6
P/E (x) 12.0 16.1 11.3 8.6 7.5
P/ BV (x) 5.2 4.3 2.5 2.0 1.6
EV/ EBITDA (x) 9.1 8.6 6.0 4.5 3.8
Fixed Assets Turnover Ratio (x) 2.7 2.5 2.1 2.4 2.3
Debt / Equity (x) 1.2 1.1 0.8 0.7 0.5
EV/ Sales (x) 1.1 1.0 0.8 0.7 0.6
Source: Company, Karvy Institutional Research
Institutional Equities Team Rahul Sharma
Head – Institutional Equities /
Research / Pharma +91-22 61844310/01 rahul.sharma@karvy.com
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Disclosures Appendix
Analyst certification
The following analyst(s), who is (are) primarily responsible for this report, certify (ies) that the views expressed
herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of
his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views
contained in this research report.
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