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MOSL: TATA MOTORS (Buy)-Margin improvement driven by RM cost and operating leverage-Capex for FY19-21 pegged at GBP4.5b pa

Tata Motors: Margin improvement driven by RM cost and operating leverage; Capex for FY19-21 pegged at GBP4.5b pa; FCF negative till FY20

(TTMT IN, Mkt Cap USD15.4b, CMP INR308, TP INR431, 40% Upside, Buy)

 

JLR hosted its first ever ‘Investors Day’ where the entire senior management discussed in length the business strategies and focus areas (Click here for the presentation). The management discussed its strategy to a) transit from internal combustion engine (ICE) to Autonomous, Connected, Electric and Shared (ACES) mobility era, b) margin improvement through efficient sourcing, MLA platform and operating leverage, c) stable capex at GBP4.5b pa over FY19-21, and d) preparedness for future emission norms. Key highlights from the meet:

• I-Pace-Innovations drives performance; waiting period of 6 months in UK: I-Pace UK supplies will start from next week, as it was training its dealer network for EV launch. It has order book of 6 months, with launch in other markets in coming months. Also, recently launched RR/RR Sport PHEV has got better than expected response, leading to supply side constraints. As a result, it is yet to be launched outside UK and EU.
• MLA platform - Pivot for future models and margins: MLA platform is scalable architecture utilizing efficiently modular commonalities. It is agnostic to propulsion systems. Given uncertainty around inflection point for EVs, it is banking on flexibility offered by MLA's platform to offer ICE, MHEV, PHEV and BEV on same flexible architecture. Every product launched after 2020 will be based on this MLA architecture, and offer some form of electrification. Full rollout of MLA platform will complete by 2025.
• Margin improvement to be driven by efficiencies in sourcing, MLA platform and operating leverage: JLR maintained its EBIT margin guidance of 4-7% over FY19-21, and 7-9% beyond that. JLR's EBIT margin improvement hinges on three areas a) higher revenue growth driven by exciting new products and mix improvement, b) c) cost efficiencies from efficient sourcing and MLA platform, and c) realizing operating leverage. Its margin guidance factors in for a) certain mix of EVs/PHEVs and b) margin normalization in China.