Buy Tata Motors Ltd For Target Rs.530-Emkay Global Financial Services Ltd
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Weak quarter; Better demand and chip supplies to drive growth ahead
* For Q1FY23, Tata Motors’ consolidated EBITDA declined by 64% qoq to Rs32bn, 58% below our estimates, due to commodity hedging losses and adverse mix at JLR. Revenue declined by 8% to Rs719bn, 3% below our estimates, because of realization miss at JLR due to lower-than-expected sales of RR/RR Sport.
* JLR’s order book is strong at ~200,000 units. Models such as Defender and newgeneration RR/RR Sport form ~65% of order bookings, which should lead to product-mix improvement going ahead. Chip supplies are expected to improve in a staggered manner going ahead. We expect a 15% volume CAGR over FY22-24E.
* We estimate FY22-24E India CV/PV volume CAGRs of 16%/28%, driven by continued upcycle in industry sales and better chip supplies. The focus remains on E-PVs, with medium-term investments of US$2bn toward new products, capacity expansion, localization, and charging infrastructure.
* We reduce FY23E consolidated EPS by 9%, factoring weak Q1 results, and FY24E EPS by 7% due to lower volume assumptions of JLR. We reaffirm Buy with an SOTP-based TP of Rs530 (unchanged), based on Sep’24E (June’24E earlier) estimates.
Results below estimates: Tata Motors’ Q1FY23 consolidated revenue declined by 8% qoq to Rs719bn (est. Rs743bn), below our estimates, due to lower-than-expected realizations at JLR. EBITDA declined by 64% to Rs31.8bn, 58% lower than estimates, owing to weak operational performance at JLR. JLR's revenue declined by 8% to GBP4.4bn (est. GBP4.8bn), below estimates, as product mix was weaker than expected, with lower share of RR/RR Sport models. EBITDA declined by 53% to GBP279mn, 53% below our estimates, owing to adverse mix and unfavorable commodity revaluation. Commodity hedge mark-tomarket losses were large at GBP175mn. India CV revenue declined by 14% to Rs148.7bn (est. Rs142bn), above estimates, owing to better realizations. EBITDA declined by 38% to Rs6.9bn (est. Rs5.7bn), above estimates, due to better gross margin. India PV revenue grew by 10% qoq to Rs116bn (est. Rs112bn). EBITDA declined by 2% qoq to Rs7.1bn (est. Rs7.2bn), broadly in-line with our estimates.
Retain Buy with a Sep’23E TP of Rs530: Our TP is based on: 1) India CV business valuation of 12x EV/EBITDA (in line with Ashok Leyland’s historical valuations of 12x), or Rs166/share; 2) India PV business (excluding EV) at 5x (notable discount to Maruti Suzuki’s historical valuation of 13x, factoring in reducing share of the ICE segment in the long term), or Rs51/share; 3) India E-PV business at a pre-money valuation of Rs516bn, or Rs135/share; 4) JLR/CJLR valuation of 2x/4x EV/EBITDA or Rs145/share; and 5) other investments at Rs38/share
Key risks: Delay in ramping up production due to supply issues for semiconductors, luxury car demand contraction in target markets, lower-than-expected growth in India CVs/PVs, failure of new launches, and adverse currency/commodity prices.
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