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MOSL: TATA MOTORS (Downgrade to Neutral)-JLR impairs GBP3b of assets-margin guidance cut

Tata Motors: JLR impairs GBP3b of assets; margin guidance cut; Downgrade to Neutral

(TTMT IN, Mkt Cap USD8.1b, CMP INR183, TP INR166, 9% Downside, Downgrade to Neutral)

 

• sales increased 5% YoY to INR770b (our estimate: INR775b) and adj. net loss stood at INR14.8b (v/s our estimate of PAT of INR4.1b and PAT of INR12b in 3QFY19). For 9MFY19, revenue grew ~7% YoY, EBITDA declined 16% YoY and adj. loss stood at ~INR35b (v/s adj. PAT of ~INR46.5b in 9MFY18).
• JLR reports loss for third straight quarter: Net sales declined 1% YoY to GBP6.2b (in-line), as volumes (incl. JV) fell 11% YoY. Realization grew 1.4% YoY. EBITDA margin shrank 180bp QoQ (-350bp YoY) to 7.3% (our estimate: 10.7%), impacted by one-off cost of ~150bp QoQ (260bp YoY) on account of de-stocking and warranty cost. JLR impaired assets in use by GBP3.1b. JLR's adj. net loss was at GBP258m (v/s our estimate of PAT of GBP35m and PAT of GBP88m in 3QFY18).
• Standalone - above estimate: Revenue grew 1.5% YoY to INR162b (in-line), led by realization growth of 1.5% YoY. EBITDA margin expanded 70bp YoY (+30bp QoQ) to 8.8% (our estimate: 7.9%), led by substantial control over fixed costs. Further, higher other income, FX gain and tax reversal boosted adj. PAT to ~INR6.4b (our estimate: ~INR22m; +196% YoY).
• Earnings call highlights: (a) JLR guidance: Expect FY19 retails to be negative; growth in FY20-22 to be ahead of premium segment. (b) Lowered EBIT margin guidance to 3-6% for FY20-22 (v/s 4-7% earlier), despite ~100bp boost due to lower depreciation charge. (c) Expect cost savings of ~GBP400m, largely led by a reduction in workforce by 4,500 people. (e) De-stocking/higher warranty provisioning to continue in 4Q.