Buy Tata Motors Ltd For Target Rs.510 - Motilal Oswal
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JLR’s wholesales below estimate; retail grows 12% QoQ
Order book at 205k units, up ~5k units from 1QFY23 levels
Wholesale volumes grow 4% QoQ and 15% YoY???????
* JLR’s 2QFY23 wholesale volumes (ex-China JV) grew just 4% QoQ to 75.3k units (v/s est. of 88.5k units and guidance of 90k units). Wholesales continued to be adversely affected by chip shortages
* Substantially lower-than-estimated wholesales would result in lower 2QFY23 estimates. For JLR, revised revenue/EBITDA/PAT estimates stand at GBP4.9b/ GBP574m/-GBP4m in 2QFY23 (v/s earlier estimates of GBP5.7b/GBP747m/ GBP124m), respectively. Revised 2QFY23 estimates for TTMT’s consolidated EBITDA/PAT are INR78.9b/-INR6.2b (v/s est. INR95.2b/INR7.5b), respectively.
* FY23 estimates will see a major cut (>80%) even if just adjusted for the miss in 2Q volumes. We see a very low probability of JLR meeting its FY23 guidance of 5% and GBP1b FCFF.
Retail volumes grew 12% QoQ, but down 5% YoY
* Retail sales grew 12% QoQ (-5% YoY) to 88.1k units.
* Retails were higher QoQ in China (+38%), North America (+27%) and overseas (+14%) but were lower in the UK (-7%) and Europe (-4%).
* Order book as on 30th Sep’22 has grown to almost 205k units, up by ~5k units from 30th Jun’22 level. Demands for the new Range Rover, new Range Rover Sport and Defender are particularly strong with orders accounting for over 145k units of the 205k units. JLR expects sales to improve over the remaining financial year as chip shortages ease.
* Valuation and view: All three businesses of TTMT are in the recovery mode. While the India CV business will see a cyclical recovery, the India PV business is in a structural recovery mode. JLR is also witnessing a cyclical recovery, supported by a favorable product mix. However, supply-side issues will defer the recovery process. While there will be no near-term catalysts from the JLR business, the India business (~50% of SoTP) will see a continued recovery. The stock trades at 16.3x FY24E consolidated EPS and 2.8x P/B. We maintain our BUY rating, with a TP of INR510 (premised on Sep’24E SoTP).
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