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No major supply issues foreseen in JLR ahead   

Valuation and View

TTMT’s 2QFY23 though consol results were operationally in?line to our estimates, S/A EBITDA missed our estimates by 18% as there was margins miss in both PV and CV segments. This was led by residual impact of RM inflation (~70bp impact) and one?off cost in PV (~50?60bp impact). While the same to neutralize in coming quarters with decline in RM. JLR performance was betterled by betterthan estimatedASPs and gross margins. The key positive from JLR results is 1) its EBIT margins turned positive to 1% (v/s  ?4.4% in 1QFY23 and management guidance of positive EBIT for FY23), 2) expect 3QFY23 wholesales to be modestly better than 2QFY23 while ASP to increase >GBP70k led by favorable product mix, 3) near FCF break even at ?GBP15m (v/s ?GBP768m in 1QFY23) and guides for FCF of GBP750m in 2HFY23 (v/s ?GBP784m), 4) not seeing major cuts in demand of premium PVs globally yet, indicating gradual volume ramp?up ahead

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 consol EPS by 22% to factor in for unfavorable currency and increased RM/non RM inflation while we raise FY24E consol EPS by 14% to factor in for better product mix and controlled VME. We estimate revenue/EBITDA CAGR of 12%/17% in FY22?25E and introduce FY25E. We maintain BUY with TP of Rs534.   

Result Highlights? Consol EBITDA in?line while Adj. losses were higher

* Consol revenues grew 10.7% QoQ (+30% YoY) at Rs796b (est Rs780b). S/A revenues grew 0.5% QoQ at Rs149.5b. The miss was led by lower ASPs at Rs614.1k/unit (est Rs652.9k/unit). JLR’s revenues grew 19% QoQ at GBP5.2b.

* Consol EBITDA came in?line at Rs61.9b with margins expanded 340bp QoQ (+120bp YoY) at Rs7.8%. S/A EBITDA margins remained flat at 5.7% (est 6.5%) impacted by RM inflation and one?off costs. JLR’s EBITDA margins expanded 400bp QoQ at 10.3% (est 9%). Consol Adj.PAT loss came in higher at Rs11.4b (est loss Rs7.5b) led by lower other income and higher tax and fx loss.

* Net Auto debt declined marginally QoQ at Rs599b (v/s Rs607b as of 1QFY23). However, external debt declined by Rs25b QoQ to Rs325b.  

* JLR near FCF break even at ?GBP15m (v/s ?GBP768m in 1QFY23) with breakeven volumes at 70k units for 2Q and annualized for FY23 at 300k units. Guides for FCF of GBP750m in 2HFY23 (v/s ?GBP784m).

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