: price: EPS: How does our one year outlook change? We retain our positive stance on TTMT driven by continued strong performance at JLR on both revenues & margins and expected reduction in losses at standalone entity in FY15 and positive EBITDA in FY16 driven by improvement in MHCV and passenger cars. LCV is expected to remain muted and lag MHCVs in recovery. We maintain a rating with a SOTP based target price of (slide 2) We expect volume growth at JLR to significantly improve in FY16 driven primarily by new launch of Jaguar XE. Within the LR portfolio Discovery Sport, Evoque and the new RR and RR Sport would be the key volume drivers. Between FY14-FY16, we expect volume CAGR of 18%, with FY15 recording a relatively muted growth of ~5%. Average realisation is expected to decline in FY16 driven by the Jaguar XE. Volumes for JLR during the quarter remained subdued due to inventory adjustment undertaken by the company ahead of the expansion of their manufacturing facility. Reported JLR EBITDA margin during the quarter (19.4%) continues to remain strong driven by lower other expenses. Expect standalone business to witness strong recovery in FY16 for MHCVs, LCVs and PVs. The market response for Zest has remained encouraging in the first few months (short waiting period). We expect a positive EBITDA in FY16, although PAT loss would continue. Despite the loss, we believe the worst is behind in the standalone business primarily due to signs of improvement in MHCV (2HFY15) and LCV (FY16) How does our 3 year Outlook change? We remain optimistic over a longer horizon on the standalone business. We believe that the worst two years are behind and the expected improvement in CVs (cyclical upturn) and PVs (new launches) would drive growth from FY16 FY18. This improvement in volumes would drive margin improvement. However, on PVs, we believe that a slew of new platform launches is a must to sustain market share Momentum from new launches in JLR is expected to continue and start of the Chinese and Brazilian plant would aid in improving global reach. Platform integration is expected to significantly improve operating efficiencies. JLR would continue to be the key value driver for TTMT 2QFY15 Update Promoters 34.3 Institutions 37.1 Public 28.5 Key estimate revision 1m 3m 12m TTMT 6% 8% 35% Sensex 6% 7% 37% BSE Auto 8% 14% 54% FY15E Bloomberg Shares o/s Market Cap 17 vember, 2014 TTMT IN 2,694mn Rs. 1,411bn 52-wk High-Low Rs. 545-331 3m Avg. Daily Vol Index Rs. 2,949mn SENSEX FY16E Old New Change Old New Change Revenue 27,99,198 25,74,029-8.0% 34,80,770 33,55,896-3.6% EBITDA 4,15,781 3,94,133-5.2% 5,09,684 5,08,864-0.2% Margin (%) 14.9% 15.3% 46 bps 14.6% 15.2% 52 bps PAT 1,86,503 1,69,848-8.9% 2,46,678 2,48,332 0.7% PAT Margin 6.7% 6.6% -6 bps 7.1% 7.4% 31 bps EPS 57.9 52.8-8.9% 76.6 77.1 0.7% All figures in Rs. mn, except EPS, which is in Rs. Financial summary (consolidated) Year Revenues (Rs. mn) EBITDA (Rs. mn) Adj.PAT (Rs. mn) Adj EPS (Rs.) P/E(x) EV/EBITDA (x) FY14 23,28,609 3,48,027 1,40,646 43.7 11.9 4.8 FY15E 25,74,029 3,94,133 1,69,848 52.8 9.9 4.6 FY16E 33,55,896 5,08,864 2,48,332 77.1 6.8 3.5 1
Quarterly financial results JLR quarterly result summary GBP mn Sep-14 Sep-13 yoy % June-14 qoq % Revenue 4,808 4,612 4.2% 5,353-10.2% Raw Material 2,904 2,827 2.7% 3,299-12.0% Employee cost 463 390 18.7% 429 7.9% Other cost 782 831-5.9% 811-3.6% Total Expenditure 3,875 3,789 2.3% 4,266-9.2% EBITDA 933 823 13% 1,087-14% Margin % 19% 18% 156 bps 20% -90 bps D&A 244 216 13.0% 234 4.3% EBIT 689 607 13.5% 853-19.2% Net Interest (exp)/ inc 5-12 -141.7% 1 400.0% PBT 609 668-8.8% 924-34.1% Tax provision 159 161-1.2% 231-31.2% Tax rate % 26% 24% 201 bps 25% 111 bps JLR Volume and ASP estimates FY13 FY14 FY15E FY16E Jaguar 57,812 79,783 79,884 1,54,400 yoy Growth 7.0% 38.0% 0.1% 93.3% Land Rover 3,14,340 2,94,107 3,68,822 4,41,200 yoy Growth 20.7% -6.4% 25.4% 19.6% Total 3,72,152 3,73,890 4,48,706 5,95,600 yoy Growth 18.4% 0.5% 20.0% 32.7% Average Selling Price (GBP) 42,412 45,107 46,420 45,664 yoy Growth -1.3% 6.4% 2.9% -1.6% Source: Spark Capital Research Standalone volume estimates FY13 FY14 FY15E FY16E PAT (Reported) 450 507-11.2% 693-35.1% MHCV 1,43,382 1,10,228 1,21,411 1,51,764 SOTP Valuation yoy Growth -30.7% -23.1% 10.1% 25.0% Basis Sep-16 Multiple Value Per Share Standalone EV/EBITDA 24,847 8.5 2,11,199 66 JLR (GBPINR @ 100) EV/Adj. EBITDA 4,03,461 4.0 16,13,842 501 Less: Consol Net-debt 81,412 25 Standalone + JLR 17,43,629 542 Other Subsidiaries 55 SOTP Value 596 *JLR EBITDA adjusted for capitalization of R&D expenses LCV 3,93,762 2,67,681 2,07,889 2,45,309 yoy Growth 21.8% -32.0% -22.3% 18.0% Cars and UVs 2,22,112 1,41,846 1,31,348 1,50,310 yoy Growth -30.6% -36.1% -7.4% 14.4% Exports 50,913 49,922 50,839 55,923 yoy Growth -19.3% -1.9% 1.8% 10.0% Source: Spark Capital Research 2
JLR Financial Summary Abridged Financial Statements - JLR Key metrics GBP mn FY14 FY15E FY16E FY17E FY14 FY15E FY16E FY17E Profit & Loss Growth rates Revenues 19,386 20,829 27,198 29,395 Revenues 22.3% 7.4% 30.6% 8.1% EBITDA 3,393 3,886 4,656 4,856 EBITDA 41.3% 14.5% 19.8% 4.3% Depreciation & Amortization 875 1,060 1,344 1,635 PAT 54.6% 12.0% 11.1% -1.4% Net Profit 1,879 2,105 2,338 2,305 Margins Balance Sheet EBITDA 17.5% 18.7% 17.1% 16.5% Shareholders Equity 5,864 7,208 9,396 11,552 EBIT 13.0% 13.6% 12.2% 11.0% Loan Funds 2,087 2,123 2,123 2,123 PAT 9.7% 10.1% 8.6% 7.8% SOURCES OF FUNDS 7,951 9,331 11,519 13,675 Leverage & WC ratios PP & E 3,184 4,473 6,255 7,246 Debt to equity (x) 0.4 0.3 0.2 0.2 Intangible Assets 4,240 5,291 5,770 6,545 Current ratio (x) 0.8 0.8 0.8 0.8 Net Current Assets 1,096 676 603 993 Debtor days (Sales) 16 15 13 13 APPLICATION OF FUNDS 7,951 9,331 11,519 13,675 Inventory days (COGS) 67 76 55 54 Cash Flows Creditor Days (COGS) 147 153 112 110 Cash from Operations 3,422 3,626 3,451 4,062 Turnover Ratios Capex 2,427 3,702 3,303 3,475 RoACE 28% 24% 23% 19% Cash from Investing -2,736-3,612-3,605-3,400 RoAE 40.0% 32.2% 28.2% 22.0% Cash from Financing -498-226 -150-150 Total asset turnover (x) 1.3 1.1 1.3 1.2 Free cashflow 995 (76) 148 588 Fixed asset turnover (x) 5.0 3.7 3.5 3.0 3
Standalone Financial Summary Abridged Financial Statements - Standalone Key metrics Rs. mn FY14 FY15E FY16E FY17E FY14 FY15E FY16E FY17E Revenues 3,42,881 3,60,742 4,50,916 5,50,731 Growth ratios Manufacturing & Other Expenses 3,72,696 3,89,212 4,52,884 5,49,170 Revenues -23.4% 5.2% 25.0% 22.1% EBITDA (9,112) (6,660) 22,002 27,692 EBITDA -153.0% -26.9% -430.4% 25.9% Depreciation 20,703 21,810 23,970 26,130 PAT 220.6% 9.6% -62.7% -29.6% Net Interest Exp / (inc) 13,375 13,016 13,198 12,778 Margins Tax -13,603 7,382.60 1,207 1,997 EBITDA -2.7% -1.8% 4.9% 5.0% Adj. Net Profit (26,106) (28,615) (10,659) (7,500) EBIT -8.7% -7.9% -0.4% 0.3% Shareholders Equity 1,91,767 1,55,699 1,53,073 1,53,607 PAT -7.6% -7.9% -2.4% -1.4% Loan funds 1,50,528 1,59,373 1,54,873 1,49,373 Leverage & WC ratios SOURCES OF FUNDS 3,54,280 3,27,057 3,19,931 3,14,965 Debt to equity (x) 0.8 1.0 1.0 1.0 Net block + CWIP 2,15,956 2,24,147 2,30,177 2,34,047 Current ratio (x) 0.7 0.6 0.6 0.6 Investments 1,84,584 1,84,584 1,84,584 1,84,584 Debtor days (Sales) 13 13 13 13 Net Current Assets (46,260) (81,674) (94,830) (1,03,666) Inventory days (COGS) 54 54 54 54 APPLICATION OF FUNDS 3,54,280 3,27,057 3,19,931 3,14,965 Creditor Days (COGS) 136 136 136 136 Cash flows from operations 24,635 (3,310) 40,156 48,687 Performance & turnover ratios Capex -31,054-30,000-30,000-30,000 RoACE 2.6% -11.3% -0.5% 0.4% Cash flows from investments 25,529 (30,000) (30,000) (30,000) RoAE -13.6% -16.5% -6.9% -4.9% Cash flows from financing -50,338 1,392-11,953-12,953 Total asset turnover (x) 0.5 0.6 0.7 0.7 Free cashflow (6,420) (33,310) 10,156 18,687 Fixed asset turnover (x) 0.5 0.6 0.7 0.7 4
Absolute Interpretation Recommendation History Add Reduce Sell Stock expected to provide positive returns of >15% over a 1-year horizon Stock expected to provide positive returns of >5% <15% over a 1-year horizon Stock expected to provide returns of <5% -10% over a 1-year horizon Stock expected to fall >10% over a 1-year horizon Date price 12-Aug-14 475 560 02-June-14 416 480 14-Mar-14 388 455 11-Feb-14 364 440 03-Jan-14 372 440 Spark Disclaimer Spark Capital Advisors (India) Private Limited (Spark Capital) and its affiliates are engaged in investment banking, investment advisory and institutional equities. Spark Capital is registered with SEBI as a Stock Broker and Category 1 Merchant Banker. This document does not constitute or form part of any offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. thing in this document should be construed as investment or financial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Spark Capital and/or its affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such applicable restrictions. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. Spark Capital makes no representation or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this document. Spark Capital, its affiliates, and the employees of Spark Capital and its affiliates may, from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through an independent analysis by Spark Capital. While we would endeavour to update the information herein on a reasonable basis, Spark Capital and its affiliates are under no obligation to update the information. Also, there may be regulatory, compliance or other reasons that prevent Spark Capital and its affiliates from doing so. Neither Spark Capital nor its affiliates or their respective directors, employees, agents or representatives shall be responsible or liable in any manner, directly or indirectly, for views or opinions expressed in this report or the contents or any errors or discrepancies herein or for any decisions or actions taken in reliance on the report or the inability to use or access our service in this report or for any loss or damages whether direct or indirect, incidental, special or consequential including without limitation loss of revenue or profits that may arise from or in connection with the use of or reliance on this report. Spark Capital and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, Spark Capital has incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report: 5
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