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MOSL: TATA MOTORS (Buy)-Above est-Better mix drives strong performance in JLR and India

Tata MOTORS: Above est; Better mix drives strong performance in JLR and India

(TTMT IN, Mkt Cap USD23.6b, CMP INR450, TP INR635, 41% Upside, Buy)

• TTMT (incl JLR) has changed accounting of realized Fx hedges. Consol EBITDA at INR108b (v/s est INR79.3b; -11% YoY). Adj. PAT at INR43.2b (v/s est INR17.5b, -25% YoY) and FY17 adj PAT at ~INR62.4b (-52%).
  
• JLR – Product mix, operating leverage drives margin improvement: Net realizations declined 1% QoQ (+4% YoY), impacted by stronger GBP. EBITDA margins expanded by 80bp YoY (+440bp QoQ) to 14.5%, driven by better product mix and operating leverage. EBITDA grew 17% YoY to GBP1.06b (v/s est GBP905m). Adj. PAT grew 28% to GBP544m (v/s est GBP394m).
  
• S/A – Mix, price hike & lower BS-3 discount drives margins: S/A realizations grew 19% QoQ (+5% YoY) to ~INR914.7k. EBITDA margins expanded by 270bp QoQ (-630bp YoY) to 4.1%. EBITDA grew 300% QoQ (-58% YoY) to ~INR5.56b (v/s est ~INR3.9b). Adj net loss stood at ~INR5.4b (v/s est ~INR6.8b).
  
• Earnings call highlights: JLR a) EBIT margin (incl CJLR) medium term target of 8-10%, though expects margin pressures to continue in FY18, b) FCF: FY17 at GBP295m (v/s GBP804m), c) Higher variable marketing spend to sustain in FY18, d) No model phase-out in FY18 (v/s Discovery phase-out in FY17). Standalone operations a) Targeting 5% market share gain in both CV & PVs in 2 year, b) Focus on driving PAT, with ~INR15b potential identified in form of significant RM cost savings, headcount reduction (~INR3b) and operating leverage, c) PV product plan ready till FY22.