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Valuation and View – Underlying profitability continues to be better

TTMT’s 2QFY24 consol results were in-line to our/street estimates with underlying profitability continues to be robust across businesses. This reflected in consol EBITDA growth of 1.2x YoY (+1% QoQ) with margins at 1) JLR at 14.9% (+490bp YoY/ -140bp QoQ, est 15%), 2) Domestic CV at 10.4% (+540bp YoY/ +100bp QoQ), 3) Domestic PV at 6.5% (+110bp YoY/ +120bp QoQ). There were several line items which were positive such as 1) Net Auto debt decline further to ~Rs387b in 2Q (v/s Rs417b in 1Q and Rs437b in FY23), 2) margins for ICE PV at 9.2% (v/s 8.6%/8.5% in 1Q/FY23) with guidance of double digit EBITDA intact, 3) upward revision in JLR EBIT guidance to ~8% for FY24E (v/s 6% earlier with no change to FY26 EBIT margins guidance of double digit and 4) JLR’s 2HFY24 volumes guidance to be better than 2QFY24. The MOU between JLR and TPEM for access to the JLR’s EMA (electrified modular architecture) platform is a step that would offer cross synergies including entry into mid SUVs (Avinya).

We like TTMT given it’s improving India franchise, early leadership in EVs in India, and JLR’s improved profitability. Standalone business is in mid-upcycle led by cyclical recovery both in PV and CV whereas favorable product cycle to help drive JLR outperformance. We raised FY24/25 consol EPS by 3-4% to factor in for better margins at JLR. We estimate revenue/EBITDA CAGR of 8%/17% in FY23-26E and maintain BUY with SoTP based TP of Rs773 (v/s Rs768 earlier).

Result Highlights – In-line performance both in India and at JLR

* Consol revenues grew 32% YoY (+3% QoQ) at Rs1051.3b (in-line, cons Rs1081b) as S/A revenues grew 24% YoY at Rs185.4b (in-line) and JLR revenues grew 30% YoY at GBP6.8b (est GBP6.4b).

* Consol EBITDA grew 1.2x YoY (+1% QoQ) at Rs137.2b (in-line, cons Rs137.6b) with margins expanded 530bp YoY (flat QoQ) at 13.1% (est 13.5%, cons 12.7%). Segmental EBITDA performance - 1) JLR at 14.9% (+490bp YoY/ -140bp QoQ, est 15%), 2) Domestic CV at 10.4% (+540bp YoY/ +100bp QoQ), 3) Domestic PV at 6.5% (+110bp YoY/ +120bp QoQ).

* Higher other at Rs16.3b (est Rs14b, +20% QoQ), partially offset lower share of profit from subs at Rs1.1b (v/s Rs3b in 1QFY24, est Rs3b) led to Adj.PAT came inline at Rs40.7b (est Rs43b, cons Rs45b).

* CJLR performance - Revenues declined ~13% QoQ at GBP374m, EBITDA margins at 13% (flat YoY, -200bp QoQ) and PAT at GBP6m.

* 1HFY24 consol revenue/EBITDA grew 36.8%/ 1.9x led by JLR at 42%/1.6x. while same for S/A grew 15%/1.2x YoY

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