Buy Tata Motors Ltd For Target Rs.460 - Motilal Oswal
Chip shortage hurts wholesale volumes
FCF outflow expected at GBP0.7b (v/s earlier estimate of GBP1b)
Wholesale volumes
* Jaguar Land Rover (JLR)’s 2QFY22 wholesale volumes (incl. CJLR JV) declined 14% YoY to 78.25k units (v/s est. 80k units).
* Jaguar wholesales declined 23% to 13.9k units (v/s est. 22k units) and LR declined 12% to 64.3k units (v/s 80k units). This implies a weaker-thanexpected mix.
Retail volumes
* JLR retails (incl. JV) declined 18% YoY to 92.7k units. LR also declined 15% and Jaguar 30%.
* All regions (ex-ROW) declined in 2Q, with the UK declining the most by 48%. RoW grew 10%.
* JLR wholesales (ex-JV) declined 13% YoY to 64,032 (v/s est. 65k).
* It now expects FCF outflow at GBP0.7b in 2QFY22 (v/s the earlier estimate of GBP1b).
* Looking ahead, the chip shortage remains dynamic and difficult to forecast; however, the company expects the semiconductor shortage to gradually ease hereafter over the next ~12 months.
* Mr Lennard Hoornik, Jaguar Land Rover – Chief Commercial Officer, stated, “The global semiconductor supply issue represents a significant near-term challenge for the industry which will take time to work through. However, it’s encouraging we were still able to grow sales of the Land Rover Defender in Q2. Moreover, we are delighted to have a record Company order book demonstrating the underlying demand for our products which we will satisfy when the semiconductor supply recovers.”
* Valuation and view:
All of TTMT’s three businesses are on the path to recovery. While the India CV business would see cyclical recovery, the India PV business is undergoing structural recovery. JLR is also witnessing cyclical recovery, supported by a favorable product mix. However, supply-side issues would defer the recovery process. While there would be no near-term catalysts from the JLR business, the India business (~50% of SOTP) would see continued recovery. The stock trades at 11.9x FY23E consol. EPS and 2.3x P/B. Maintain Buy, with Target Price of INR460 (Sep’23E SOTP-based).
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