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Below our estimate; JLR beat led by mix, India misses

Semiconductor supplies to improve in 2HFY22; long-term view remains intact

* TTMT’s 2QFY22 performance was heavily impacted by the semiconductor shortage in JLR and India. Operating performance beat in JLR was driven by a favorable mix and lower fixed cost. India CV business missed our estimates due to commodity cost pressures. We expect a strong recovery/ traction in JLR/India businesses from 3QFY22E onwards.

* We have lowered our FY22E/FY23E EPS estimate by PTL/8% to account for the lost sales due to the ongoing semiconductor shortage as well as higher competitive intensity in the CV business. We maintain our Buy rating with a TP of INR565/share (Sep’23E SoTP-based).

Mix dilutes operating deleverage impact; working capital hurts cash flows

* Consolidated revenue/EBITDA grew by ~15%/-29% YoY in 2QFY22 to INR614b/INR40.5b (est. INR606b/INR42b). Adjusted loss stood at INR44.4b (est. INR33b) as against a loss of INR3b/INR44.5b in 2QFY21/1QFY22.

* FCF outflow at INR32b was due to working capital outflow of INR20b in 2QFY22. Net consolidated debt (Auto) rose INR31b QoQ to INR644b.

* Better mix drives beat, JLR expects gradual recovery from 2HFY22: Net realizations grew 3.3% QoQ and 2.5% YoY to GBP60.75k (est. GBP60k). EBITDA margin declined by 170bp QoQ to 7.3% (est. 5.9%). The beat was driven by: a) a better mix, b) lesser VME, and b) lower fixed cost (lower than estimated staff and other expenses). Lower depreciation and positive contribution from the JV restricted EBIT margin to -4.7% (est. - 7.3%). Net loss stood at GBP381m (est. GBP340m) due to higher tax. FCF outflow stood at GBP664m (v/s an outflow of GBP996b in 1QFY22 and a positive GBP463m in 2QFY21).

* PV demerger makes its standalone operations non-comparable: Pro forma revenue grew 94% YoY to ~INR187.8b (in line), with EBITDA margin expanding just 110bp YoY (+150bp QoQ) to ~4% (est. 7.3%). Commodity cost had ~4.8pp impact on margin.

* Realizations in the CV business declined by 3.4% QoQ (+26% YoY) to INR1.26m (est. INR1.34m). EBITDA margin stood at 3.1% (v/s 1.6% in 2QFY21 and 0.1% in 1QFY22). Realizations in the PV business improved by 7% QoQ (+18.7% YoY) to INR0.87m (est. INR0.84m). EBITDA margin stood at 5.1% (+100bp QoQ and 350bp YoY).

Highlights from the management commentary

* Demand and supply: Demand remains strong in JLR, with a record order book of ~127k units. The semiconductor shortage situation remains dynamic. However, JLR expects a gradual recovery starting 2HFY22, with higher production (by ~50k units) in 3Q from 2QFY22 levels.

* Inventory fell by 50k units YoY at the JLR and dealer level. Dealer inventory stood at 27k units. It will have to build 30-40k units of systemic inventory (of which 66% will at the dealer level), in addition to servicing its order book of ~127k units.

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