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Revenue outlook robust amid healthy demand and improving supplies

* Consolidated EBITDA declined by 29% yoy to Rs40.4bn, 9% above estimates, owing to better-than-expected profitability at JLR. Consolidated revenue grew by 15% yoy to Rs613.8bn, in line with our estimate of Rs608.2bn.

* JLR’s order book is strong at 125,000 units, while dealer inventories are at historically low levels. New generation products like RR/RR sport are likely to be launched in coming quarters. Chip supplies should improve ahead but at a slower rate than expected. We expect a 2% drop in volumes in FY22E (post 3% cut) and then a strong 17% CAGR over FY22-24E (unchanged).

* We expect 18%/19% CAGRs in India CV/PV volume over FY22-24E, driven by improving macros, new products and marketing efforts. Focus remains on E-PVs, with investments of US$2bn toward new products, capacity expansion, localization and charging infra.

* We reduce FY22E consolidated EBITDA by 7%, factoring in lower volumes in JLR and cost pressure in standalone. But we increase FY23-24E EBITDA by 1-2% on better scale in standalone. Following the revision, we expect robust revenue/EBITDA CAGRs of 19%/37% over FY22-24E. Reaffirm Buy with SOTP of Rs550 (earlier Rs515), based on Dec’23E EPS (earlier Sep’23E).

EBITDA down 29% yoy but above estimates: Consolidated revenue grew by 15% yoy to Rs613.8bn, in line with our estimate of Rs608.2bn. EBITDA margin contracted by 400bps to 6.6% (est.:5.9%). Margin was 70bps above our estimate, aided by better-than-expected margin in JLR. Overall, adjusted net loss stood at Rs45bn (est.: -Rs44.2bn). The tax charge was at Rs10bn, mainly due to the inability to recognize UK deferred tax assets. Benefits of deferred taxes should be realized in H2 when JLR turns profitable. JLR's revenues declined by 11% yoy to GBP3.9bn. EBITDA margin contracted by 380bps to 7.3%, above our estimate of 5.2%. The company has highlighted efforts toward prioritizing production of higher margin products and cost controls to reduce the cash break-even point. The standalone financial structure has changed, as the PV business has been de-merged. Standalone revenue grew by 97% yoy to Rs110bn. EBITDA margin contracted by 30bps to 2.2%, owing to commodity inflation. Adj. PAT from continuing operations was a loss of Rs5.2bn in comparison to a loss of Rs7bn last year. Losses from discontinued operations (PV business) stood at Rs837mn, lower than the loss of Rs4.84bn last year.

Retain Buy with a Dec’22E TP of Rs550. Our TP is based on 1) India CV business valuation at 12x EV/EBITDA (in line with Ashok Leyland’s historical valuations of 12x), or Rs174/share; 2) India PV business (excluding EV) at 5x (notable discount to Maruti Suzuki’s historical valuations of 13x, factoring in reducing share of the ICE segment in the long term), or Rs35/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 Rs171/share; and 5) Other investments at Rs35/share. Key risks: Delay in ramp-up of production due to supply issues for semiconductors, luxury car demand contraction in target markets, slower macro recovery in India, failure of new launches, and adverse currency/commodity prices.

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