| Tata Motors-Turns Around Jaguar Land Rover In 2 Yrs Flat JLR is at present experiencing extremely strong demand in most markets, especially so in China (volumes +100% YoY). The LR range has a waiting period of around two months across models, with a similar waiting period for the new XJ. Capacity utilisation, as a result, is close to 80%. In addition, given the strong demand, the company is facing some constraints in engine supply.
Tata Motors' (TTMT) 1Q11 results were far ahead of estimates primarily due to strong JLR earnings.
● JLR's 1Q11 EBITDA at £350 mn was well ahead of estimates. Realisations grew 6.4% QoQ with margins at 15.5% (+405 bps QoQ), driven by a better product mix, lower incentives, as well as exchange gains (c £30-50 mn). We note management expectscost-cutting benefits to flow in through the rest of the year.
● Standalone EBITDA at Rs11.6 bn was 11% higher than estimated, aided by lower raw material costs (flat QoQ) and other expenses (-50 bps vs ests). Given the buoyancy in the CV industry, pricing power for players remains strong. For TTMT, the car portfolio isperforming well backed by continued success of recent launches.
● Given the strong momentum in JLR, we significantly raise our estimates for this business (details in Part-II of this note). Our consolidated FY11E/12E EPS estimates increase to Rs116/Rs131, while our target price rises to Rs1,146. The strong1Q11 performance reinforces our confidence in the recovery cycle for TTMT. We maintain our OUTPERFORM rating. Domestic results are strong as expected TTMT's standalone results were notable for delivering sequentially flat EBITDA (11% above estimates) despite 13% lower volumes. Most of this came from lower raw material costs (flat QoQ) and other expenses (-50 bps vs est). The CV industry remains buoyant, with players enjoying strong pricing power. The company introduced two price increases of c. 1% each in April and July, to pass on higher material costs. TTMT expects CV volumes to remain strong in the coming months with pre-buying ahead of emission norm changes (due in October) and the festive season thereafter.
The passenger vehicle segment is also performing well with the continued success of Indigo Manza (the market share in its segment is up 11% YoY) and higher delivery volumes for Nano (with the commissioning of the new plant at Sanand). The company iscautious on margins, as it expects some pressure from increasing commodity costs (we maintain FY11E EBITDA margins at 11.2%).
JLR surprises by a wide margin
JLR's EBITDA at £350 mn was much higher than expected, up 50% QoQ even though volumes remained relatively flat. The surprise was both on account of the higher realisations (+6.4% QoQ) as well as margins (+405 bps QoQ). An improving product mix, better regional mix (China) as well as lower incentives have contributed to the higher realisations.
However, part of the outcome is also due to favourable exchange rate movements, which we estimate would have contributed £30-50 mn to overall EBITDA. The company expects some increase in commodity costs in 2H, but hopes to offset the pressure through cost cuts.
JLR is at present experiencing extremely strong demand in most markets, especially so in China (volumes +100% YoY). The LR range has a waiting period of around two months across models, with a similar waiting period for the new XJ. Capacity utilisation, as a result, is close to 80%. In addition, given the strong demand, the company is facing some constraints in engine supply. Other subsidiaries continue to improve as well
Recovery seems well entrenched for the company's other subsidiaries as well. Most subsidiaries continued to post healthy growth in revenues as well as EBITDA in 1Q11. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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