Q3FY17 RESULT UPDATE Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 GEOJIT RESEARCH Nov-16 Dec-16 Jan-17 Feb-17 RETAIL EQUITY RESEARCH Tata Motors Ltd Auto BSE CODE:500570 NSE CODE: TATAMOTORS Bloomberg CODE: TTMT:IN SENSEX: 28,762 BUY Rating as per Large cap 12months investment period CMP Rs459 TARGETRs518 RETURN 13% 22 nd February, 2017 Weak quarter; JLR s volume outlook remains strong Tata Motors (TAMO) is India s largest CV manufacturer with 52% market share in M&HCV segment. With the acquisition of Jaguar Land Rover (JLR) in 2008, TAMO now has presence in the global luxury car market. While overall sales fell 4% YoY in Q3FY17, EBITDA was down 42% YoY led by poor show at both JLR & standalone businesses. JLR s EBITDA margin was down 510 bps YoY to 9.3% impacted by realised hedging losses & multiple headwinds. Likewise, margin of standalone business fell by 421 bps YoY due to weak product mix & higher input costs. Given the weak 9MFY17 performance, we lower our FY17/FY18 revenue estimates by 4%/6%. We reduce FY17/FY18 EBITDA estimates by 17.7%/12.7% as we build in lower margin assumptions for JLR & standalone businesses. We project JLR (ex-china) volumes to witness a healthy CAGR of 10% during FY17-19E driven by new Discovery & ramp up of F-pace & XFL. We value the stock on SOTP basis with a revised target price (TP) of Rs518 (earlier Rs510). Maintain BUY. Sub-par revenue performance While JLR revenues increased by moderate ~13% YoY, standalone business witnessed a growth of just 1.8%% YoY. Volumes at JLR (excluding China joint venture) fell by 6.7% YoY to 1.31 lakh units mainly due to Discovery run-out. Notably, volumes of Discovery/Range Rover (RR)/Range Rover Sport (RRS) were down YoY by 64%/23%/13%. This led to poor product mix as Discovery enjoys good margin. Given the uptick in JLR volumes coupled with recovery in standalone business, we project overall revenue growth of 11.4% CAGR over FY17-19E. Operating performance a miss! Poor standalone business performance coupled with hedging losses (realised forex loss of GBP455mn) & several one-offs at JLR business marred the overall operating performance. Notably, JLR s EBIDTA margin fell 510bps YoY to 9.3% on account of various factors: 1) adverse product mix, 2) increased variable marketing costs, 3) higher new model launch costs, 4) biennial pay negotiation settlement. Notably, the management indicated that these losses are likely to stay at current levels for the next 3-4 quarters due to GBP depreciation. Similarly, India business swung into huge losses with EBIDTA margin at 0.7% (down 421bps YoY) led by de-growth of 7.5% YoY in the M&HCV segment impacted by demonetisation woes & higher input costs. Even, China JV profits reported a moderate growth of 6% QoQ to GBP35mn. We estimate EBITDA margin to expand by 290bps to 13.9% over FY17-19E led by better performance of both JLR & standalone businesses. JLR volume growth to stay healthy We expect JLR s volume growth to remain healthy, driven by recent launches (F-pace, Jaguar XFL) & upcoming products. While TAMO will start wholesales of all new Discovery in Q4FY17, mid-sized RR would be launched in FY18. These new launches will help JLR (ex- China) in achieving volume growth of 10.2% CAGR over FY17-19E. Likewise, we expect improved performance in the standalone business on the back of pick-up in MHCV growth (pre-buying due to rollout of BS-4 norms & government thrust on infra development), continued growth momentum in PV segment & revival in LCV segment. Thus, we estimate standalone volumes to grow at 12% CAGR over FY17-19E. Outlook & Valuation We reduce our EBITDA margin estimates by 180bps/100bps for FY17/FY18 to factor in the weak operational performance. Given the strong product pipeline for JLR, we maintain positive stance on TAMO. We value the stock on SOTP basis, ascribing separate values to JLR (3.5xEV/EBITDA), China JV (3.5x EV/EBITDA), Standalone (8x EV/EBITDA) & investments in subsidiaries (using P/E, P/BV), revising TP to Rs518 from Rs510. Maintain BUY. Company Data Market Cap (Rscr) 155,855 Enterprise Value (Rscr) 174,095 Outstanding Shares (cr) 339.6 Free Float 65% Dividend Yield 0.1% 52 week high Rs599 52 week low Rs290 6m average volume (cr) 0.8 Beta 1.9 Face value Rs2 Shareholding % Q1FY17 Q2FY17 Q3FY17 Promoters 33.0 33.0 34.7 FII s 25.0 26.1 24.2 MFs/Insti 16.8 14.5 14.9 Public 6.4 6.2 6.2 Others 18.8 20.2 20.0 Total 100.0 100.0 100.0 Price Performance 3mth 6mth 1 Year Absolute Return -2% -10% 43% Absolute Sensex 10% 2% 20% Relative Return* -12% -12% 23% *over or under performance to benchmark index 570 470 370 270 TATAMOTORS Sensex (Rebased) Standalone (Rs.cr) FY17E FY18E FY19E Sales 279,646 311,419 347,034 Growth (%) 1.5 11.4 11.4 EBITDA 30,718 39,502 48,185 Margin(%) 11.0 12.7 13.9 PAT Adj 7,510 13,373 18,325 Growth (%) -42.9 78.1 37.0 Adj.EPS 22.1 39.4 54.0 Growth (%) -42.9 78.1 37.0 P/E 20.8 11.7 8.5 P/B 1.8 1.5 1.3 EV/EBITDA 6.2 4.8 3.8 RoE (%) 8.9 14.2 16.7 D/E 0.7 0.6 0.5
Quarterly Financials (Consolidated) Profit & Loss Account (Rscr) Q3FY17 Q3FY16 YoY Growth % Q2FY17 QoQ Growth % 9MFY17 9MFY16 YoY Growth % Sales 67,531 70,592 (4.3) 65,900 2.5 199,327 192,517 3.5 EBITDA 5,161 8,854 (41.7) 6,283 (17.8) 19,066 26,379 (27.7) Margin (%) 7.6 12.5 (490bps) 9.5 (189)bps 9.6 13.7 (414)bps Depreciation 4,230 4,262 (0.8) 4,454 (5.0) 13,235 12,365 7.0 EBIT 931 4,593 (79.7) 1,829 (49.1) 5,831 14,014 (58.4) Interest 871 1,138 (23.5) 1,025 (15.0) 3,074 3,510 (12.4) Other Income 167 193 (13.2) 179 (6.7) 520 674 (22.7) Exceptional Items 371 (233) - 16-872 (2,940) - PBT 599 3,414 (82.5) 999 (40.1) 4,149 8,237 (49.6) Tax 867 669 29.6 425 104.2 2,012 1,888 6.5 PAT (268) 2,745-575 - 2,138 6,349 (66.3) Minority Interest 362 189 91.4 254 42.7 1,021 54 1,776.9 Reported PAT 94 2,934 (96.8) 828 (88.7) 3,159 6,403 (50.7) Adjustment (371) 233 - (16) - (872) 2,940 - Adj PAT (277) 3,167-812 - 2,287 9,344 (75.5) No. of shares (cr) 339.6 339.6 339.6 339.6 339.6 EPS (Rs) (0.8) 9.3-2.4-6.7 27.5 (75.5) Source: Company, Geojit Research Change in estimates Old estimates New estimates Change % Year / Rscr FY17E FY18E FY17E FY18E FY17E FY18E Revenue 291,315 330,820 279,646 311,419 (4.0) (5.8) EBITDA 37,317 45,236 30,718 39,502 (17.7) (12.7) Margins (%) 12.8 13.7 11.0 12.7 (180) bps (100) bps PAT 13,003 17,789 7,510 13,373 (42.2) (24.8) EPS 38.3 52.4 22.1 39.4 (42.2) (24.8) Sum-of-the-parts Valuation EBITDA(E) Basis Multiple (x) Value (Rscr) Value/share (Rs) Standalone 3,656 Mar-19 EV/E 8 29,251 86 JLR 39,772 Mar-19 EV/E 3.5 139,200 410 China JV 2,848 Mar-19 EV/E 3.5 9,966 29 Other Subsidiaries - Mar-19 P/E, P/BV - 11,865 35 Less: Net Debt 14,472 43 Target Price 518
Consolidated Financials Profit & Loss Account Sales 262,796 275,561 279,646 311,419 347,034 % change 12.9% 4.9% 1.5% 11.4% 11.4% EBITDA 39,239 36,756 30,718 39,502 48,185 % change 12.6% -6.3% -16.4% 28.6% 22.0% Depreciation 13,389 17,014 18,059 20,468 23,075 EBIT 25,850 19,742 12,660 19,034 25,109 Interest 4,861 4,623 4,291 4,291 4,291 Other Income 899 982 726 799 847 PBT 21,887 16,100 9,095 15,542 21,665 % change 10.2% -26.4% -43.5% 70.9% 39.4% Tax 7,643 2,873 3,001 3,886 5,416 Tax Rate (%) 34.9% 17.8% 33.0% 25.0% 25.0% Reported PAT 13,986 11,024 8,382 13,373 18,325 Adj* (185) (2,120) 872 - - Adj PAT 14,171 13,143 7,510 13,373 18,325 % change -5.4% -7.3% -42.9% 78.1% 37.0% No. of shares (cr) 321.9 339.6 339.6 339.6 339.6 Adj EPS (Rs) 44.0 38.7 22.1 39.4 54.0 % change -5.4% -12.1% -42.9% 78.1% 37.0% DPS (Rs) - 0.2 1.0 1.5 1.5 Cash flow Pre-tax profit 13,986 11,024 10,595 17,342 23,825 Depreciation 13,386 17,014 18,059 20,468 23,075 Changes in W.C (3,672) 2,552 1,636 2,284 3,068 Others 15,676 10,571 3,565 3,492 3,444 Tax paid (4,194) (1,994) (3,001) (3,886) (5,416) C.F.O 35,183 39,167 30,853 39,701 47,996 Capital exp. (31,614) (32,682) (25,000) (30,500) (33,000) Change in inv. (5,418) (4,603) (5,000) (5,000) (5,000) Other invest.cf 2,513 (1,326) 726 799 847 C.F - investing (34,519) (38,611) (29,274) (34,701) (37,153) Issue of equity - 7,433 - - - Issue/repay debt 12,286 (5,177) - - - Dividends paid (720) (174) (388) (567) (567) Other finance.cf (6,364) (5,275) (4,291) (4,291) (4,291) C.F - Financing 5,201 (3,193) (4,679) (4,858) (4,858) Chg. in cash 5,865 (2,637) (3,100) 142 5,985 Closing cash 32,116 32,880 29,780 29,921 35,907 Balance Sheet Cash 32,116 32,880 29,780 29,921 35,907 Accounts Receivable 12,579 12,990 13,183 14,681 16,360 Inventories 29,272 33,399 35,763 39,469 43,395 Other Cur. Assets 13,695 16,833 17,156 18,966 20,988 Investments 15,337 20,466 25,466 30,466 35,467 Gross Fixed Assets 177,516 208,589 228,589 259,089 292,089 Net Fixed Assets 103,092 121,042 122,984 133,016 142,941 CWIP 9,330 7,809 12,809 12,809 12,809 Intangible Assets 4,697 4,837 4,837 4,837 4,837 Def. Tax (Net) 1,390 (440) (440) (440) (440) Other Assets 15,806 16,316 16,316 16,316 16,316 Total Assets 237,315 266,132 277,853 300,040 328,578 Current Liabilities 87,132 99,597 104,112 113,410 124,105 Provisions - - - - - Debt Funds 69,211 63,100 63,100 63,100 63,100 Other Liabilities 24,276 21,764 21,764 21,764 21,764 Equity Capital 644 679 679 679 679 Reserves & Surplus 55,618 80,103 87,225 100,031 117,789 Shareholder s Fund 56,262 80,783 87,904 100,710 118,468 Minority Interest 433 888 972 1,056 1,140 Total Liabilities 237,315 266,132 277,853 300,040 328,578 BVPS (Rs) 174.8 237.9 258.9 296.6 348.9 Ratios Y.E March FY15 FY16 FY17E FY18E FY19E Profitab. & Return EBITDA margin (%) 14.9 13.3 11.0 12.7 13.9 EBIT margin (%) 9.8 7.2 4.5 6.1 7.2 Net profit mgn.(%) 5.4 4.8 2.7 4.3 5.3 ROE (%) 23.3 19.2 8.9 14.2 16.7 ROCE (%) 21.7 15.3 9.0 12.5 14.9 W.C & Liquidity Receivables (days) 17.2 16.9 16.9 16.9 16.9 Inventory (days) 53.1 58.0 59.7 59.5 59.6 Payables (days) 93.7 97.3 97.0 98.4 99.9 Current ratio (x) 1.0 1.0 0.9 0.9 0.9 Quick ratio (x) 0.7 0.6 0.6 0.6 0.6 Turnover &Levg. Gross asset T.O (x) 1.6 1.4 1.3 1.3 1.3 Total asset T.O (x) 1.2 1.1 1.0 1.1 1.1 Adj. debt/equity (x) 1.2 0.8 0.7 0.6 0.5 Valuation ratios EV/Sales (x) 0.7 0.7 0.7 0.6 0.5 EV/EBITDA (x) 4.7 5.1 6.2 4.8 3.8 P/E (x) 10.4 11.9 20.8 11.7 8.5 P/BV (x) 2.6 1.9 1.8 1.5 1.3
Recommendation Summary (last 3 years) Dates Rating Target 750 650 550 450 350 250 150 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Source: Bloomberg, Geojit Research 17-May-14 BUY 500 12-Aug-14 BUY 525 09-Sep-14 BUY 575 25-Nov-15 BUY 600 13-Jan-15 BUY 630 09-Feb-15 BUY 640 27-May-15 BUY 600 15-Jul-15 BUY 525 02-Jun-16 BUY 536 06-Dec-16 BUY 510 22-Feb-17 BUY 518 Investment Rating Criteria Large Cap Stocks; Mid Cap and Small Cap; Buy - Upside is 10% or more. Buy - Upside is 15% or more. Hold - Upside or downside is less than 10%. Accumulate* - Upside between 10% - 15%. Reduce - Downside is 10% or more. Hold - Absolute returns between 0% - 10%. Reduce/Sell - Absolute returns less than 0%. To satisfy regulatory requirements, we attribute Accumulate as Buy and Reduce as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. * For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL. Geojit Financial Services Limited has outsourced the preparation of this research report to DION Global Solutions Limitedwhose relevant disclosures are available hereunder.however, Geojit's research desk have reviewed this report for any untrue statement of material fact or any false or misleading information. General Disclosures and Disclaimers CERTIFICATION I, Rohit Joshi, employee of Dion Global Solutions Limited (Dion) is engaged in preparation of this report and hereby certify that all the views expressed in this research report (report) reflect my personal views about any or all of the subject issuer or securities. Disclaimer This report has been prepared by Dion and the report & its contents are the exclusive property of the Dion and the client cannot tamper with the report or its contents in any manner and the said report, shall in no case, be further distributed to any third party for commercial use, with or without consideration. Geojit Financial Services Limited has outsourced the assignment of preparation of this report to Dion. Recipient shall not further distribute the report to a third party for a commercial consideration as this report is being furnished to the recipient solely for the purpose of information. Dion has taken steps to ensure that facts in this report are based on reliable information but cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this report. It is hereby confirmed that wherever Dion has employed a rating system in this report, the rating system has been clearly defined including the time horizon and benchmarks on which the rating is based. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this report is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. Dion has not taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. This report is not to be relied upon in substitution for the exercise of independent judgment. Opinions or estimates expressed are current opinions as of the original publication date appearing on this report and the information, including the opinions and estimates contained herein, are subject to change without notice. Dion is under no duty to update this report from time to time. Dion or its associates including employees engaged in preparation of this report and its directors do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of securities, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. The investments or services contained or referred to in this report may not be suitable for all equally and it is recommended that an independent investment advisor be consulted. In addition, nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to individual circumstances or otherwise constitutes a personal recommendation of Dion.
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