MOSL: TATA MOTORS (Buy)-Below-est.; adverse FX in JLR, higher discounts in India hurt margins
Tata Motors: Below-est.; adverse FX in JLR, higher discounts in India hurt margins
(TTMT IN, Mkt Cap USD8.6b, CMP INR186, TP INR228, 23% Upside, Buy)
Structural recovery underway, though adverse FX slows pace
- While the operating performance was well below expectations, all key operating matrices showed an improvement. Although TTMT faced impact from FX in JLR and higher discounts to clear inventory in India, we do believe that the structural recovery is in place and part of cyclical factors will ease.
- We lower our FY21/22 EPS estimate by 11%/3% to factor in the adverse FX impact, but maintain Buy. We would buy into any weakness in the stock.
JLR business hit by adverse FX, India by higher discounts
- revenue declined 7% YoY to ~INR716.8b, while EBITDA was up 21% YoY to INR72b. The company reported adj. PAT of INR17.7b (our estimate: ~INR10.4b) v/s net loss of ~INR11.6b in 3QFY19. For 9MFY20, revenue/EBITDA declined 8%/2% YoY; it reported net loss of ~INR20.2b.
- JLR - adverse FX, higher VME hurt margin: JLR's operating performance was adversely impacted by adverse FX and higher VME, hurting realizations
- (-4.5% QoQ), EBITDA margin (-300bp QoQ, +350bp YoY) and EBIT margin
- (-150bp QoQ, +590bp YoY). However, MTM FX gain and def. tax asset boosted reported PAT to GBP372m (our estimate: GBP181m), as against loss of GBP272m in 3QFY19. FCF stood at -GBP144m (v/s -GBP361m in 3QFY19).
- S/A - higher discounts, op. deleverage hurt margins: India biz was impacted by continued inventory reduction via higher discounts, helping reduce system inventory by ~39k units QoQ. This, coupled with resultant op. deleverage, led to EBITDA margin contraction of ~590bp YoY (+460bp QoQ) to 2.9%. Adj. net loss was at ~INR8.7b (estimate: INR4.4b) v/s PAT of ~INR6.4b in 3QFY19.
- Consol. net debt (auto) reduced by INR45.5b to INR453.8b, driven by FCF generation of INR40b and INR39b of equity issuance to Tata Sons
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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