tata motors - karvy onlinecontent.karvyonline.com/contents/content_201492316654.pdf · tata...

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

[email protected]

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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

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r-13

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v-1

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r-14

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M&HCV LCV Utility PV/Cars

(%)

0

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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


JLR’s Market-Mix

Exhibit 5: JLR’s Geographical Mix


Exhibit 6: JLR’s Geographical Mix




-

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


Exhibit 8: Yearly Wholesale Volume


Exhibit 9: Jaguar Product Mix- Quarterly


Exhibit 10: Land Rover Product Mix - Quarterly


Exhibit 11: Jaguar Product Mix –Yearly


Exhibit 12: Land Rover Product Mix –Yearly


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


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


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


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


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


Institutional Equities Team Rahul Sharma

Head – Institutional Equities /

Research / Pharma +91-22 61844310/01 [email protected]

Gurdarshan Singh Kharbanda Head - Sales-Trading +91-22 61844368/69 [email protected]

INSTITUTIONAL RESEARCH

Analysts Industry / Sector Desk Phone Email ID

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INSTITUTIONAL SALES

Celine Dsouza Sales +91 22 61844341 [email protected]

Edelbert Dcosta Sales +91 22 61844344 [email protected]

INSTITUTIONAL SALES TRADING & DEALING

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For further enquiries please contact:

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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.

Disclaimer

The information and views presented in this report are prepared by Karvy Stock Broking Limited. The information

contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for

the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any

loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all

investors. Investors must make their own investment decisions based on their specific investment objectives and

financial position and using such independent advice, as they believe necessary. While acting upon any information

or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Stock Broking nor any

person connected with any associate companies of Karvy accepts any liability arising from the use of this information

and views mentioned in this document.

The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above

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disclose their individual stock holdings and details of trades, if any, that they undertake. The team rendering

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Stock Ratings Absolute Returns Buy : > 15% Hold : 5 - 15% Sell : < 5%

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