MOSL: TATA MOTORS (Buy)-JLR – turnaround in sight led by better mix, cost cuts; India business worst is behind
Tata Motors: JLR – turnaround in sight led by better mix, cost cuts; India business worst is behind
(TTMT IN, Mkt Cap USD7b, CMP INR161, TP INR195, 21% Upside, Buy)
- JLR - performance over last two years impacted by adverse macro/mix…: JLR has endured a turbulent operating environment over the last two years, led by a troika of adverse macro, product mix (due to pipeline favoring Jaguar) and market mix (due to the underperformance in China led by product quality issues, high inventory, high discounts and low dealer profitability).
- …but part of those challenges being addressed…: Some of the aforementioned challenges, particularly on product/market mix, are likely to ease based on product pipeline visibility and initiatives undertaken by JLR in China. JLR's product pipeline is dominated by LR, with four of the five new product launches over the next 2-3 years coming from the LR brand. LR's contribution is already improving since 2QFY20. In China, JLR has been focused on (a) reducing inventory (now at lowest levels since 2017), (b) improving dealer profitability and (c) brand-led pull strategy. JLR has been outperforming its peers in China since Jul'19.
- …and firm focus on controlling cost/capex will lead to steady recovery: JLR's cost-cutting initiatives under 'Project Charge' have started reflecting in P&L, with GBP0.5b of the targeted GBP1b of cost savings achieved till Sep'19 and the balance GBP0.5b on track to be achieved in 2HFY20. On the investment side, it has cut capex and working capital by GBP1.7b (v/s target of GBP1.5b) till Sep'19. More importantly, 'Project Accelerate' would focus on driving longer-term structural improvements in costs, sales, time to market, and quality.
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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