Buy Tata Motors Ltd For Target Rs.566 - Yes Securities
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Hitting the right cords
* Healthy turnaround in PVs – Led by superior product offering and SUV focused strategy, TTMT witnessed heathy recovery in PVs as its market share grew by 530bps to 12% in 1HFY22 (v/s 6.7% in FY19). This is to further grow led by new launches and strong acceptance of key brands such as Nexon, Altroz and Tiago. TTMT’s domestic PV volumes will grow at 26-28% CAGR of FY21-23 v/s industry growth of 12-14%. This auger well for market share gains and FCF break even by FY23E.
* Well set to benefit from CV recovery – TTMT to be the major beneficiary of CV cyclical up-turn both in M&HCVs/LCVs as volumes are expected to grow at ~41%/23% CAGR over FY21-23E. This should not only elevate S/A contribution in SoTP but also de-risk JLR in near term.
* JLR – near term production constraints to hamper growth - The semiconductor shortage is impacting wholesale volumes while retail off-take is good in all of the key markets (reflected in the order book of over 110k units in 2Q). The convergence of factors such as 1) sustained cost cutting, 2) mix improvements and 3) new launches should drive JLR market share and profitability. JLR’s targeted transition from the ‘push’ to ‘pull’ strategy for volumes, particularly in China, would be a critical variable for margin expansion.
* EVs – Leading the charge in domestic PVs while lagging competition at JLR- JLR lags peers on EV though has new roadmap. In 12-18 months, it will launch next-gen PHEVs of RR and RR-Sport which will later have BEVs. Other LR models will be EV from 2024 and will have 6 BEVs by 2026. Jaguar will also shift to a BEV-only platform in 2025, potentially improving a weak franchise.
* We have BUY on TTMT with SoTP based price target of Rs566. We like TTMT, given its improving India franchise, early leadership in EVs in India, and JLR focus returning to the higher-margin Land Rover brand. Further, the recent TPG deal provides additional headroom on India EV capabilities. With cost savings of GBP300m in Q2 (YTD GBP500m and target of GBP1b for FY22, in addition to GBP1.5b in FY21) and strong FCF expected, TTMT is formidable play among OEMs. We estimate revenue and EBITDA CAGR of 22%/27% in FY21- 23E.
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