1 | Page Tata Motors Result Update Jun 11, 2018 Revised Target Rs. 420 Industry Automobile CMP Rs. 312 Q4 FY18: JLR drives 18% yoy revenue growth Consolidated revenue up 18.2% yoy to Rs 91279 Cr led by higher volumes from JLR. Adjusted EBITDA margin expanded 90bps yoy to 12.5%. JLR margin surged 260bps qoq to 13.4%, however standalone margin contracted 50bps qoq to 7.5%. PAT for the quarter stood at Rs 2115cr, -51% yoy. For FY18, consolidated revenue increased 9% while EBITDA was flat yoy at Rs 33,816cr. PAT was down 39% yoy on the back of weak margin, higher depreciation and interest expenses. Overall debt increased ~Rs 4000cr to ~Rs 82500cr. Company has cash & equivalents of Rs 34000cr as on Mar 2018. Management expects a strong all-round performance in FY19, with improvement in both volume and profitability. JLR EBIT margin target stands at 4-7% (vs. 3.8% in FY18) between FY19-21, led by better scale, cost reduction efforts, ramp up of low cost Slovakia plant and reduction in forex losses. In comparison, Standalone EBIT margin target stands at 3-5% (vs 0.5% in FY18), led by better scale and cost reduction efforts. It is to be noted that standalone revenues contribute ~12% to the revenues and 8% to the EBIT. So, JLR continues to remain key contributor to the company’s overall performance. Company has guided lower foreign exchange loss in the next two years. Other Highlights In PV business, it is aspiring to be the third largest player in the Indian PV industry and hopes to be in the consideration set of car buyers in India. This, coupled with a continuous focus on optimizing cost and capex, would facilitate a turnaround in the PV business. Management guides market share gain in domestic market with improvement in profitability in Indian operations. JLR volumes to grow in high single digit over FY18-20E. JLR has several levers, both cyclical and structural, in the form of (a) favorable FX, as realized hedge rates improve from 4QFY18, (b) operating leverage, (c) cost savings on modular platform on full rollout of modular strategy, and (d) low-cost Slovakia plant. The convergence of the multiple factors stated above is expected to drive performance. Kushal Rughani [email protected]HDFC Scrip Code TELLTD BSE Code 500570 NSE Code TataMotors Bloomberg TTMT CMP as on 11 Jun’18 312 Equity Capital (Rs cr) 679 Face Value (Rs) 2 Equity O/S (cr) 289 Market Cap (Rs Cr) 90220 Book Value (Rs) 29.2 Avg. 52 Week Vol 89540 52 Week High (Rs) 470 52 Week Low (Rs) 282 Shareholding Pattern (%) Promoters 36.4 Institutions 48.3 Non Institutions 15.3
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1 | P a g e
Tata Motors Result Update
Jun 11, 2018
Revised Target
Rs. 420
Industry
Automobile
CMP
Rs. 312
Q4 FY18: JLR drives 18% yoy revenue growth
Consolidated revenue up 18.2% yoy to Rs 91279 Cr led by higher volumes from JLR. Adjusted EBITDA margin
expanded 90bps yoy to 12.5%. JLR margin surged 260bps qoq to 13.4%, however standalone margin contracted
50bps qoq to 7.5%. PAT for the quarter stood at Rs 2115cr, -51% yoy. For FY18, consolidated revenue inc reased
9% while EBITDA was flat yoy at Rs 33,816cr. PAT was down 39% yoy on the back of weak margin, higher
depreciation and interest expenses. Overall debt increased ~Rs 4000cr to ~Rs 82500cr. Company has cash &
equivalents of Rs 34000cr as on Mar 2018.
Management expects a strong all-round performance in FY19, with improvement in both volume and profitability.
JLR EBIT margin target stands at 4-7% (vs. 3.8% in FY18) between FY19-21, led by better scale, cost reduction
efforts, ramp up of low cost Slovakia plant and reduction in forex losses. In comparison, Standalone EBIT margin
target stands at 3-5% (vs 0.5% in FY18), led by better scale and cost reduction efforts.
It is to be noted that standalone revenues contribute ~12% to the revenues and 8% to the EBIT. So, JLR continues
to remain key contributor to the company’s overall performance. Company has guided lower foreign exchange loss
in the next two years.
Other Highlights
In PV business, it is aspiring to be the third largest player in the Indian PV industry and hopes to be in the
consideration set of car buyers in India. This, coupled with a continuous focus on optimizing cost and capex,
would facilitate a turnaround in the PV business.
Management guides market share gain in domestic market with improvement in profitability in Indian
operations.
JLR volumes to grow in high single digit over FY18-20E.
JLR has several levers, both cyclical and structural, in the form of (a) favorable FX, as realized hedge rates
improve from 4QFY18, (b) operating leverage, (c) cost savings on modular platform on full rollout of
modular strategy, and (d) low-cost Slovakia plant. The convergence of the multiple factors stated above is
EV/EBITDA 4.1 4.2 3.6 3.1 Source: Company, HDFC sec Research
3 | P a g e
Tata Motors Result Update
Jun 11, 2018
Price Chart
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RECOMMENDATION HISTORY
Date Reco Price Reco Target
6 May - 2017 Rs 420 Buy Rs 498
14 Aug’17 Rs 374 Buy Rs. 498
11 Jun’18 Rs 312 Hold Rs 420
Rating Definition:
Buy: Stock is expected to gain by 10% or more in the next 1 Year. Sell: Stock is expected to decline by 10% or more in the next 1 Year.
4 | P a g e
Tata Motors Result Update
Jun 11, 2018
Disclosure:
I, Kushal Rughani, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report acc urately reflect our views about the subject issuer(s) or securities. HSL
has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommend ation(s) or view(s) in this report.
Research Analyst or HDFC Securities Ltd. Does not have financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or
more in the subject company at the end of the month immediately preceding the date of publication of the Research Repo rt. Further Research Analyst or HDFC Securities Ltd. or its associate does not have material
conflict of interest.
Any holding in stock – No
HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good
faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty , express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HSL or its affiliates to any registration or licensing requirement within such jurisdiction.
If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purposes without prior written approval of HSL. Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments.
HSL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the compa ny(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HSL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation
in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HSL and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report.
HSL or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the pa st twelve months.
HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t date of this report for services in respect of managing or co -
managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory se rvice in a merger or specific transaction in the normal course of business. HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HSL nor
Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Resea rch Analysts is not based on any specific merchant banking, investment banking or brokerage
service transactions. HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any
compensation/benefits from the Subject Company or third party in connection with the Research Report.
Domestic business recovery underway: TTMT is undertaking various initiatives to increase market share in the PV and CV segments. To address the product gaps in its PV portfolio, it will launch Nexon UV by Sept-18. Reduction in the number of suppliers and in time to market, improvement in service quality and expansion of touch points are the steps being undertaken to increase market share in both segments by 5% over the next two years.
JLR: Rich product mix and lower forex losses to benefit: Management guided that margins would benefit from the positive impact of new model launches and lower cost structure (higher mix of new models). Higher realised hedge losses along with high advertising expenditure will add to the burden. Over the medium-term, management is guiding for 8-10% EBIT margin (implying EBITDA margin of 14-16%) for the medium term.
Near-term outlook:
We expect Q2 JLR volumes to be strong, driven by the launch of the new Discovery and RR Velar.
Tata Motors’ (TTMT) 1QFY18 performance was a miss on account of lower JLR margins (7.9%), led by lower
volumes, higher costs associated with launches and rise in staff costs. Standalone margins also were below
estimates, owing to an inferior product mix and GST transition-related costs.
Management guided that hedging losses could reduce in subsequent quarters. Also, the model mix is likely to
turn favourable with the ramp-up of sales for Discovery and Velar, thereby improving margins. Post
commissioning of the Slovakia plant, capex intensity for JLR is likely to reduce from FY19. This, coupled with an
improvement in operating performance, would improve free cash flows in FY18E and FY19E.
With Tiago and Tigor’s favourable start and new launches scheduled over FY18E, we believe the worst is over
for the PV business. In May, 2017, we had recommended as BUY on stock at Rs 420 and add on dips to Rs 380
with target price of Rs 498. After the report, the stock had reached near to our target levels at around Rs 485.
Now, that after correction from the Rs 480 levels, Stock has reached to our lower band and we maintain faith
and reiterate BUY on the stock with TP of Rs 498. After weak results for the first quarter we cut FY18/FY19
estimates and introduce FY20 estimates. We maintain BUY with SOTP-based TP of Rs 498.
3 | P a g e
PICK OF THE WEEK
Aug 14, 2017
Tata Motors
Maintain BUY with Target price of Rs 498
In FY17, Tata Motors had posted 6% volume growth in domestic market led by strong 22% rise from passenger vehicles volumes while we
expect the growth momentum to accelerate and see ~9% cagr over FY17-20E which would in turn drive profitability in the domestic business
as well. We estimate 12% revenues cagr led by healthy business growth from Domestic market and strong growth momentum from JLR sales
over FY17-20E.
JLR has young product portfolios especially in luxury SUV market. We expect recent launches and new product pipeline from JLR to result in
robust sales growth. Post its current capex cycle, we expect operating leverage to kick-in from FY18. We expect 160bps expansion in operating
margin led by operational efficiency over the same period. We forecast 20% PAT cagr led by strong revenues and operating performance over
FY17-20E.
We recommend BUY on Tata Motors at CMP of Rs 374 and add on dips to Rs 337 with TP of Rs 498. The stock trades at ~8.5x/~7.2x FY19E/20E
EPS. Our SOTP-based valuation comes to Rs 498 (assigning 3.9x FY20E EV/EBITDA to; implied ~9.5x FY20E consol EPS). We are fairly
confident on strong domestic business turnaround and change in JLR growth fortune post SUV launches. Key risks to our assumptions would
be a) sharp slowdown in global and Chinese luxury car demand, b) lack of product acceptability in domestic PV business and c) To maintain
RATING Risk - Return BEAR CASE BASE CASE BULL CASE
BLUE LOW RISK - LOW RETURN STOCKS
IF RISKS MANIFEST PRICE CAN FALL 20% OR MORE
IF RISKS MANIFEST PRICE CAN FALL 15%
& IF INVESTMENT RATIONALE
FRUCTFIES PRICE CAN RISE BY 15%
IF INVESTMENT RATIONALE
FRUCTFIES PRICE CAN RISE BY 20% OR
MORE
YELLOW MEDIUM RISK - HIGH RETURN STOCKS
IF RISKS MANIFEST PRICE CAN FALL 35% OR MORE
IF RISKS MANIFEST PRICE CAN FALL 20%
& IF INVESTMENT RATIONALE
FRUCTFIES PRICE CAN RISE BY 30%
IF INVESTMENT RATIONALE
FRUCTFIES PRICE CAN RISE BY 35% OR
MORE
RED HIGH RISK - HIGH RETURN STOCKS
IF RISKS MANIFEST PRICE CAN FALL 50% OR MORE
IF RISKS MANIFEST PRICE CAN FALL 30%
& IF INVESTMENT RATIONALE
FRUCTFIES PRICE CAN RISE BY 30%
IF INVESTMENT RATIONALE
FRUCTFIES PRICE CAN RISE BY 50%
OR MORE
13 | P a g e
PICK OF THE WEEK
Aug 14, 2017
Tata Motors
Price Chart
Reco History
Date CMP Reco Target
06-May-17 420 BUY 498
14-Aug-17 374 BUY 498
Rating Definition:
Buy: Stock is expected to gain by 10% or more in the next 1 Year. Sell: Stock is expected to decline by 10% or more in the next 1 Year.
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14 | P a g e
PICK OF THE WEEK
Aug 14, 2017
Tata Motors
Disclosure: I, Kushal Rughani, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or HDFC Securities Ltd. does not have financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock – NO HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HSL or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purposes without prior written approval of HSL. Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HSL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HSL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HSL and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report. HSL or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business. HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HSL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the Subject Company or third party in connection with the Research Report. HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 HDFC Securities Limited, SEBI Reg. No.: NSE-INB/F/E 231109431, BSE-INB/F 011109437, AMFI Reg. No. ARN: 13549, PFRDA Reg. No. POP: 04102015, IRDA Corporate Agent License No.: HDF 2806925/HDF C000222657, SEBI Research Analyst Reg. 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