Profits surge on super performance at JLR, standalone business follows suit
In Q4FY16, consolidated numbers posted a threefold profit on excellent performance at JLR as well as standalone business. JLR volumes which grew by 14% yoy (ex China JV) along with benign commodity costs and strong performance at Cherry JV in China led to margins at JLR coming at 13.7%. Excluding the impact of the one time reserves and charges of GBP166 mn for a product recall in the US, the margins at JLR would have come at 16.2%. Standalone margins came in at 7.2% which was the most heartening figure as the company is coming out of the woods in the domestic markets. The company showed a remarkable improvement yoy in the LCV business along with buoyancy in MHCV volume growth leading. The recent launch of Tiago is attracting strong demand on the back of value for money proposition. The weakness in pound was partially negated by the forex hedges and revaluation of Euro payables done in the quarter. New launches like the Jaguar XE, F-Pace etc are delivering strong results for the company worldwide. This was the first quarter since last 2 years that the standalone numbers have posted bottomline profits. This along with stellar performance at JLR led to consolidated profits reporting robust numbers.
Outlook and valuation
JLR was the star performer for TAMO in Q4, just like it has been over the past few years. We witnessed overall volume growth mainly in the western markets and steady and strong recovery in China. With local demand moving up, the Chinese JV with Cherry saw profit rise on the back of good volume surge. Going forward, we believe that new launches may lead to a robust volume growth in FY17 which will be accompanied by a good profitability growth supported by China JV expansion and operating leverage. On the back of improving dynamics in the domestic markets and JLR's operational strength we believe profits will continue to rise at a good momentum. Domestically, MHCV strength will continue along with new product launches in PV segment expected to gain a good deal of market share in PV industry. We believe the LCV turnaround will sustain despite competition moving up from the pickup segment. The company is launching new models in the LCV as well as the MAV segment of the MHCV business to gain back the market dominant position in these businesses. The stock at these levels looks attractive despite the rally which we saw off late and provides an opportunity to participate in the growth going forward. We have raised our target price in line with the expectations of a strong JLR and domestic performance hereon. We also move to FY18 numbers, thus posting a higher target price of ₹ 550. Maintain BUY.
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