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Chip shortage improves QoQ; volumes miss estimates

Expects positive FCF of GBP150m | Order book at 154k units in 3QFY22

Wholesale volumes increase 9% QoQ; product mix shows improvement

* Jaguar Land Rover (JLR)’s 3QFY22 wholesale volumes (excluding CJLR JV) declined 33% YoY (+9% QoQ) to 69.2k units (v/s estimated 80k units).

* Production increased 41% QoQ to 72.2k units in 3QFY22, reflecting improvement in chip supply.

* Wholesale volumes of Range Rover, Range Rover Sport, and I-Pace grew 92%, 64%, and 34.5% QoQ, respectively, reflecting mix improvement.

* While 3QFY22 wholesale volumes were lower than our estimate of 80k, product mix improvement diluted the impact of operating deleverage.

* Based on actual volumes, we now estimate 3QFY22 EBITDA/PAT at GBP527m/GBP(3)m v/s our prior estimate of GBP608m/GBP72m, respectively. Accordingly, our 3QFY22E consolidated PAT changes to net loss of INR1.9b (v/s PAT estimate of INR6.6b earlier).

* The management expects positive FCF of ~GBP150m in 3QFY22 (v/s outflow of GBP664m in 2QFY22).

Retail volumes decline 14% QoQ; chip supply likely to improve in 4QFY22

* JLR’s retail volumes (including JV) declined 38% YoY (-14% QoQ) to 80.1k units. Specifically, LR declined 34.5% YoY and Jaguar decreased 49% YoY.

* All regions reported both YoY & QoQ dip in 3QFY22, with the UK and RoW declining the most by 24% and 25% QoQ, respectively.

* According to the management, though chip shortage remains dynamic and difficult to forecast, it believes chip supply would continue to improve in 4QFY22 With strong underlying demand, JLR managed semiconductor supplies proactively to maximize production of higher margin products.

* The total order book has expanded to over 154k units in 3QFY22 (v/s ~127k units in 2QFY22), ~30k more than 2Q for the New Range Rover. Further, Land Rover Defender’s demand remains strong at ~36k orders.

* Mr. Lennard Hoornik, JLR’s Chief Commercial Officer, stated, “The New Range Rover is the embodiment of Jaguar Land Rover’s vision for Modern Luxury by Design. We are delighted that positive feedback at launch has led to a strong order intake for this first all new modern luxury model. Furthermore, the Land Rover Defender continues to contribute to a record order bank next to our all electric Jaguar I-PACE. Semi-conductor supply challenges continue within the industry but our wholesale volumes are improving. We look forward to completing delivery to global customers as supply improves in 2022.”

* Valuation & view: TTMT’s all three businesses are in recovery mode. While the India CV business would see cyclical recovery, the domestic PV business is on a structural recovery mode. JLR is also witnessing a cyclical recovery underpinned by favorable product mix; however, supply-side headwinds will defer the recovery process. While there would be no near- term catalysts from the JLR business, the India business (~50% of SOTP) would see sustained revival. The stock trades at 20.1x FY24E consol. EPS and 3.1x P/B. Maintain BUY with a Mar’24 SOTP-based TP of INR610, implying 20% upside to the CMP.

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