MOSL: TATA MOTORS (Neutral)-JLR misses but S/A exceeds estimate-JLR confident of volume recovery/cost savings
TATA MOTORS: JLR misses but S/A exceeds estimate; JLR confident of volume recovery/cost savings
(TTMT IN, Mkt Cap USD6.6b, CMP INR144, TP INR146, 1% Upside, Neutral)
- revenue declined 8% YoY to INR614.7b (our estimate: INR564.9b). TTMT reported adj. net loss of INR36b (our estimate: loss of INR11.8b).
- JLR - higher VME, op. deleverage impact margin: Net revenue declined 3% YoY to GBP5.1b, implying realization growth of 1.5% YoY to GBP48.7k (our estimate: GBP47.2k). EBIT margin was at -5.5% (our estimate: -4%), implying a contraction of 180bp YoY due to lower volumes and higher marketing spend/warranty cost. Adj. loss was at GBP391m (our estimate: loss of GBP171m).
- S/A - cost cutting supports margins: S/A net revenue declined 20% YoY to INR133.5b (our estimate: INR129.8b), implying net realization growth of 2.7% YoY to INR970.7k (our estimate: INR943.5k). EBITDA margin shrank 220bp YoY (-90bp QoQ) to 6.4% (our estimate: 3.2%). Higher other income and lower depreciation restricted net loss to INR908m (our estimate: loss of INR5.1b).
- Earnings call highlights: (a) China volumes for JLR are stabilizing, with Jul'19 volumes till date surpassing Jul'18 volumes. It expects growth hereon, supported by a low base. (b) The company is very confident on cost savings of GBP850m (~350bp) in FY20, of which GBP90m were delivered in 1QFY20. (c) TTMT maintained the EBIT margin guidance of 3-4% for FY20/21, with FY20 being at lower end of the range. (d) Inventory in CVs at 7 weeks (Jun'19), with a reduction expected in Jul'19. (f) Consol. net auto debt at INR465b (v/s INR330b as of Jun'18).
- Valuation view: We cut our FY20 consol. EPS estimate by 24%. While volumes for JLR appear to have bottomed out, a profitable recovery with cash generation would be very gradual and challenging in a disruptive environment for the global automotive industry (particularly for luxury cars). FY21 could be a challenging year for India as well as JLR (run-out of most profitable RR/RR Sport). Further, the noise around EVs, Brexit and trade war adds to the uncertainty. Maintain Neutral.
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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