Buy Tata Motors Ltd For Target Rs.521 - Yes Securities Ltd
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JLR impacted by supply issues; S/A by RM cost
Valuation and View
TTMT’s 1QFY23 results missed our/street estimates led by 1) JLR inferior product/market mix as supply constraints led to slower than expected ramp in RR/RR sports ramp up, 2) JLR – unfavorable fx and 3) S/A – higher op. expense. While net auto debt increased to Rs607b in 1QFY23 (v/s Rs487b) led by WC change, the same will be normalized with production normalization in 2QFY23. Some of these variables to improve in near term as 2QFY23 to see dual impact of easing chip shortages benefitting production with China market opening up. However, several internals continue to remain healthy with VME spends declined to ~1.4% (v/s 3.1% YoY), JLR order book at 200k units (v/s 168k in 4Q with ~65% of orders are for high margin new launches such as Defender, RR and RR sport). Despite underperformance in 1QFY23, JLR’s guidance of positive EBIT (5%) and positive FCF (GBP1b) is unchanged.
We like TTMT given it’s improving India franchise, early leadership in EVs in India, and JLR’s aggressive cost controls. Standalone business is in sweet spot led by healthy cyclical recovery both in PV and CV whereas favorable product cycle to help drive JLR outperformance. We cut FY23/24 EPS by ~14.5%/0.5% to factor in RM inflation and negative fx movement and estimate revenue/EBITDA CAGR of 14%/29% in FY22 24E. We maintain BUY with TP of Rs521 (v/s Rs515 earlier).
Result Highlights Margins miss largely led by weak JLR performance
* Consol revenue de grew 8% QoQ/ (+8% YoY) at Rs719.3b (est at Rs630.6b). TTMT CVs/JLR revenue de grew ~12% QoQ/~8% QoQ while TTMT PV revenue grew ~10% QoQ.
* Gross margins contracted 175bp QoQ at 33%. EBITDA came in lower at Rs31.8b ( 64% QoQ/ 40bp YoY, est at Rs84.5b) led by negative operating leverage and cost inflation. Consequently, margins miss our/street est at 4.4% ( 670bp QoQ, est at 13.2%, cons at 9.2%).
* Segmental EBIT margins CV at 2.4% (+160bp QoQ), PV at 0.6% (v/s 1.3% QoQ), JLR at 4.4% (+2% QoQ).
* Adj. loss came in at Rs64.4b (v/s Rs3.9b in 4Q, est PAT of Rs2.4b, cons loss of Rs10.4b).
* Net auto debt has increased to Rs607b as on June'22 (v/s Rs487b as on Mar'22). This is largely led by increase in working capital debt at Rs185b as on June'22 (v/s 96b as on Mar'22).
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