Report
Jinesh Gandhi

MOSL: TATA MOTORS (Buy)-Above estimate led by JLR margin beat-cuts FY19 margin guidance for JLR

Tata Motors: Above estimate led by JLR margin beat; cuts FY19 margin guidance for JLR

(TTMT IN, Mkt Cap USD8.0b, CMP INR179, TP INR248, 39% Upside, Buy)

 

  • sales increased 2% YoY to INR721b (our estimate: INR689b). TTMT reported a net loss of INR7b (v/s our estimate of a loss of INR4.6b) v/s PAT of INR25b in 2QFY18 and a loss of INR19b in 1QFY19.
  • JLR reports loss for second straight quarter: Net sales declined 11% YoY to GBP5.6b, as volumes fell 15% YoY. Realization declined 0.5% YoY (-0.2% QoQ). EBITDA margin expanded 290bp QoQ (+270bp YoY) to 9.1% (our estimate: 7.3%), led by cost-control initiatives. JLR reported a loss of GBP101m (our estimate: GBP104m).
  • S/A - below estimate: Revenue grew 28% YoY to INR178b (our estimate: INR182.5b), led by volume/realization growth of 24.3%/5.6% YoY. EBITDA margin expanded 180bp YoY (-10bp QoQ) to 8.5% (our estimate: 9.7%), driven by healthy CV profitability (EBITDA margins at 11.4%) and EBITDA break-even margin of PV business at 0.2% (v/s -13.8% in 1QFY18).
  • Earnings call highlights: (a) JLR guidance: [i] FY19 volumes to be flat (implies ~8.5% YoY growth in 2H v/s our estimate of -3.4%) and break-even at PBT (v/s 4-7% EBIT margin earlier), [ii] FY20/21 EBIT margin of 4-7% (maintained), [iii] Capex (incl. R&D) of GBP4b (v/s GBP4.5b earlier) for FY19/20 and 11-13% of sales (v/s ~16% in FY19/20) from FY21. (b) Target for the next 18 months of delivering GBP2.5b of cost, cash and profit improvements, driven by capex cut (GBP0.5b each in FY19/21), cost cutting (GBP1b) and working capital (GBP0.5b). (c) Near-term outlook for most of the key markets is cautious, with JLR focusing on correcting inventory.
Underlying
Tata Motors Limited

Tata Motors is an automobile company, engaged in the manufacture and sale of commercial and passenger vehicles primarily in India. Co. provides cars, utility vehicles, trucks, buses, and defense vehicles, as well as develops electric and hybrid vehicles for personal and public transportation. In addition, Co. is engaged in the provision of engineering and automotive applications, as well as machine tools and factory automation applications; construction equipment manufacturing; automotive vehicle components manufacturing, among others. Co. markets its vehicles in Europe, Africa, the Middle East, South East Asia, South Asia, and South America.

Provider
Motilal Oswal
Motilal Oswal

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Analysts
Jinesh Gandhi

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