Sell Tata Motors Passenger Vehicles Ltd for the Target Rs 310 by Motilal Oswal Financial Services Ltd
India PV margins disappoint Margins to remain under pressure in the near term
* Tata Motors Passenger Vehicles (TMPV) adjusted PAT came in at INR11.4b in 1QFY27 compared to our estimated loss of INR1.2b, on the back of a betterthan-expected performance in JLR. While JLR margins were better than expected, they still remained under pressure due to a sharp rise in VME cost. Despite strong volume growth, India business margins remained largely stable YoY, which was disappointing. Even net consolidated automotive debt increased to INR422b from INR307b QoQ, fully attributable to JLR.
* On account of the better-than-expected JLR performance in 1Q, we raise our FY27 EPS estimate by 12%. However, given the multiple headwinds ahead, we refrain from changing our FY28 estimates materially at this stage. While India business has been gaining market share, margins remain under pressure given the adverse mix and rising input costs. Further, JLR continues to face multiple headwinds on the demand and cost fronts. While JLR has embarked on a major cost-reduction initiative, it is likely to only help partially offset the current headwinds. Given the significant challenges at JLR and the continued geopolitical uncertainty, we reiterate our Sell rating on the stock with SoTP-based TP of INR310 per share (based on FY28E). We value JLR and India PV business at 2x and 13x EV/EBITDA, respectively.
Margins remain under pressure, both at JLR and India PVs
* TMPV reported a consolidated reported profit of INR8.6b in 1Q, better than our estimated loss of INR1.2b, aided by a better-than-expected JLR performance.
* JLR volumes were impacted by temporary supply constraints, including a fire at a major component supplier at the start of the quarter, resulting in a 10% YoY decline. EBIT margins contracted to 2.8% in 1QFY27 from 4.0% in 1QFY26, due to lower volumes and higher VME costs (above our est. -0.5%). PBT beat our estimates, coming in at GBP109m, down ~69% YoY. JLR posted free cash outflow of GBP998m in 1Q due to margin pressure and seasonally adverse working capital.
* India business saw a strong 66% YoY increase in revenue to INR182b (in line), led by an impressive 46% YoY growth in volumes. However, despite robust volume growth, margins improved just 20bp YoY to 4.2% (vs. our est. 6.4%). Margins were under pressure due to the surge in input costs and a rising EV mix. As a result, PBT stood at INR110m (vs. est. INR4.4b).
* Net consolidated automotive debt further increased to INR422b from INR307b QoQ, with the entire debt attributed to JLR (up to INR452b from INR327b). Indian business continues to be net cash.
Valuation and view
On account of the better-than-expected JLR performance in 1Q, we raise our FY27 EPS estimate by 12%. However, given the multiple headwinds ahead, we refrain from changing our FY28 estimates materially at this stage. While India business has been gaining market share, margins remain under pressure given the adverse mix and rising input costs. Further, JLR continues to face multiple headwinds, both on the demand and cost fronts. While JLR has embarked on a major cost-reduction initiative, it is likely to only help partially offset the current headwinds. Given the significant challenges at JLR and the continued geopolitical uncertainty, we reiterate our Sell rating on the stock with SoTP-based TP of INR310 per share (based on FY28E). We value JLR and India PV business at 2x and 13x EV/EBITDA, respectively.
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
