{LONGTERMINVESTORS} Tata Motors (TTMT IN) Muted performance; attractive valuation

 

Dear all,

Muted performance; attractive valuation

§  In 2QFY17, Tata Motors' consolidated net revenue grew 6.9% YoY to INR 670bn. Consolidated EBITDA margin contracted by 103 bps YoY to 9.4% led by lower EBITDA margin of JLR. Reported consolidated net profit stood at INR 8.2bn on account of lower EBITDA margin and higher depreciation. Standalone revenue fell by 3% YoY to INR 101bn due to 8% drop in average realization during the quarter. Standalone EBITDA margins contracted 260bps YoY to 2.7% in 2QFY17 on back of lower gross margins.

§  Tata Motors' standalone volume growth was at 7%YoY on the back of 28%YoY jump in passenger cars and 11.5%YoY rise in LCV. In Standalone business, sluggish demand in M&HCV segment was partially offset by growth momentum in the domestic LCV segment, Car segment and Exports.

§   JLR volumes were up 29%YoY in 2QFY17 to 142,459 units. JLR registered revenue of £5.9bn, (up 23% YoY). In 2QFY17, JLR volumes grew by 28% YoY in UK, 39% YoY in North America, 31% YoY in Europe, 49% YoY in China and 1% YoY in other markets. 

Valuation: Going forward, management expects the unwinding of hedges to happen gradually and may take some more time. Currently, the stock is trading at P/E of 8.2X FY2018E. We maintain the stock as BUY rating with a target price of INR 616 assigning P/E of 11.0X FY2018E. Risks: Slowdown in Chinese market, increase in commodity prices and interest rates.

 

Regards,

CSEC Research

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