Dear all,
Strong volume growth – JLR & domestic business
Ø Tata Motors' standalone revenue grew by 16.6% YoY to INR 125.7bn driven by strong volume growth in JLR and domestic business. M&HCV and LCV volume rose 26.6% YoY and 14% YoY respectively. Realization improved by 10% YoY. Consolidated revenue increased by 19.4% YoY to INR 806.8bn; net profit stood at INR 51.7bn vs INR 17.1bn in 4QFY15 driven by strong operating performance, lower net finance expenses, sale of investments in subsidiary company of INR 3.3bn and insurance recoveries of GBP 58mn related to Tianjin.
Ø Standalone business reported an EBITDA margin at 7.1% (+560 bps) led by operating leverage benefits. Management expects standalone EBITDA margin to improve to 8% levels in 2HFY17 led largely by higher volumes in MHCV and pick up in LCV segment. Consolidated EBITDA margin came in at 14.1 % (+160bps). JLR EBIDTA margin contracted by (-123 bps) YoY to 16.2% led by decline in volumes, increase in other expenses due to ramp up of new models & underutilized engine facility.
Valuation: Uptick in JLR volumes, decent domestic performance, strong pipeline of new model launches and robust performance in key geographies are key positives. Currently, the stock is trading at a valuation of 10.2X and 8.4X for FY17E and FY18E EPS respectively. We assign a target P/E of 9X FY18E consensus earnings, to arrive at a target price of INR 483 and assign an Outperformer rating. Risks: Significant slowdown in China, delayed revival in demand, high interest rates, commodity prices.
Regards,
CSEC Research
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