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MOSL:TATA MOTORS: JLR hit by multiple factors; beat in both India PVs and CVs

• TTMT’s 1QFY23 performance saw a sharp miss due to several headwinds at JLR (mix, cost inflation, and hedge revaluation), though the India business delivered a strong performance. Given the improvement in semiconductor supplies and strong order book at JLR, there is hope of JLR making good on the pain of 1QFY23. The India business should benefit from a continued demand recovery in CVs and production ramp-up in PVs. Considering the high fixed cost nature of JLR business, an improvement in production at JLR is the biggest factor to watch out for, followed by mix.
• We cut our FY23 consolidated EBITDA estimate by 5% due to the impact of a weak mix in JLR in 1Q. Forex losses and higher tax in JLR resulted in a 62% cut in our consolidated FY23 EPS. We have largely maintained our FY24 estimates. We maintain our Buy rating with a TP of INR520 per share (Jun’24E SoTP based).

The strong performance of the India business eclipsed by JLR

• Consolidated business: Consolidated revenue grew 8% YoY to INR719b, but EBITDA fell 39.5% to INR31.8b (est. INR69.7b). EBITDA margin stood at 4.4% (v/s 7.9%/11% in 1Q/4QFY22 and our estimate of 9.6%). Adjusted loss stood at INR65b (v/s a loss of INR44.5b/INR3b in 1Q/4QFY22 and our estimated loss of INR13b).
• JLR – multiple factors hit its 1QFY23 performance: JLR’s performance was impacted by several headwinds: a) adverse volume and mix (semiconductor shortages, slower ramp-up in new RR and RR Sport, and COVID-led lockdowns in China), inflation, and forex and commodity revaluation. Wholesale volumes (excluding JVs) fell 15% YoY. Net realizations improved by 4% YoY (down 2% QoQ) to GBP61.35k (est. GBP63.5k) due to weaker mix. Net sales for JLR declined by 11% YoY to GBP4.4b (est. GBP4.6b). EBITDA margin fell 270bp YoY to 6.3% (est. 12.3%) due to a weaker mix, cost inflation, and operating deleverage. EBITDA declined by 38% YoY to GBP279m (est. GBP562m). Net loss stood at GBP605m (v/s a loss of GBP286m in 1QFY22 and our estimated loss of GBP34m), weighted down by FX losses of GBP221m.
• Tata CV business – benefitting from a cyclical recovery: Volumes (including overseas subsidiaries) grew 104% YoY in 1QFY23, led by growth in M&HCVs/LCVs, which grew 111%/95%. Realizations remained flat YoY at INR1.6m (est. INR1.46m), led by higher non-vehicle sales. Revenue/EBITDA grew 107%/10x YoY to INR163.4b/ INR8.9b (est. INR150b/INR4.3b). EBITDA margin grew 430bp YoY, but fell 70bp QoQ to 5.4% (est. 2.8%). Recurring PBT stood at INR3b (v/s a loss of INR4.4b in 1QFY22 and our estimated loss of INR1.5b).
• Tata PV business – ramp-up continues: Volumes grew 102% YoY, led by growth in UVs (up 182%). Realizations grew 5.5% YoY to INR0.89m (est. INR0.86m) in 1QFY23. Revenue/EBITDA grew 120%/3.4x YoY to INR116.65b/INR7.3b (est. INR113b/INR6.8b). EBITDA margin grew 220bp YoY, but fell 80bp QoQ to 6.2% (est. 6%). Recurring PBT stood at INR140m (est. INR49m) v/s a loss of INR3.6b in 1QFY22.
• FCF generation in the Auto business was negative at INR98b (v/s a negative INR182b in 1QFY22), due to an adverse working capital of ~INR89b. FCF for JLR deteriorated to GBP769m (v/s GBP996m/over GBP340m in 1Q/4QFY22).
• Consolidated net debt increased by INR120b QoQ to ~INR607b.