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  • Stock recommendation: Tata Motors Ltd – REDUCE – TP Rs.277

    Publish date: 1st August, 2018


    Result Update

    TAMO reported loss in 1QFY19 on the back of weak performance at JLR (partly impacted by one-time expenses). TAMO’s standalone business reported operational improvement in the quarter. JLR reported loss in the quarter on the back of China duty change and inventory de-stocking.


    Key Highlights

    • Standalone revenue grew by 85% YoY led by 59% volume growth.
    • Standalone operations EBITDA margin came in strong at 8.7%, significant improvement YoY and better than 4QFY18. Led by operational turnaround and higher other income, standalone business reported net profit of Rs11.9bn.
    • JLR’s wholesale volume declined by 8%, leading to 7% YoY fall in revenues.
    • EBITDA for the quarter declined 27% YoY and margin contracted due to lower volume, China related one-off and higher marketing spend. At the consolidated level, TAMO reported net loss of Rs19bn in 1QFY19.

    Valuation & outlook

    We downgrade the stock to REDUCE on the back of disappointing 1QFY19 results and increased challenges in the past few months for the JLR business.

    Overall growth outlook for JLR/luxury car segment has seen significant deterioration in recent months – that includes diesel vehicle demand uncertainty in Europe, demand slowdown in key geographies, US tariff risk and increased uncertainty regarding Brexit and its impact thereafter.

    High capex between FY19-FY21 will also hurt JLR’s profitability.

    New axle norm for commercial vehicle segment is expected to impact standalone business in the near term.

    Management maintained its 4-7% EBIT margin guidance between FY19-FY21.

    We cut our earnings and lower our target price to Rs277.

            

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