TTMT 2QFY2013 RU - smartinvestor.business-standard…smartinvestor.business-standard.com/BSCMS/PDF/tatamotors_071112… · Bloomberg Code TTMT@IN Shareholding Pattern (%) Promoters

Please refer to important disclosures at the end of this report 1

Y/E March (consolidated ` cr) 2QFY13 2QFY12 % chg (yoy) 1QFY13 % chg (qoq)

Net sales 43,403 36,198 19.9 43,324 0.2

EBITDA 5,334 4,504 18.4 5,755 (7.3)

EBITDA margin (%) 12.3 12.4 (15)bp 13.3 (99)bp

Adjusted PAT 2,085 2,316 (10.0) 2,685 (22.4)

Source: Company, Angel Research

Strong JLR performance; weak standalone results: Tata Motors (TTMT) registered a lower-than-expected bottom-line performance for 2QFY2013 due to sequential decline in operating margins (down 99bp to 12.3%) on account of deteriorating standalone performance and higher tax rate (32% as against 27.3% in 1QFY2013). Nevertheless, Jaguar and Land Rover (JLR) witnessed margin expansion of 40bp qoq to 14.8% led by favorable product-mix (higher share of Range Rover Sport) and exchange rate movement. The consolidated top-line registered a strong 19.9% yoy (flat qoq) growth, which was broadly in-line with our estimates aided by a 35.3% yoy (down 5.9% qoq) growth in JLR revenues. However, the adjusted net profit declined 22.4% qoq (10% yoy) due to high tax rate on recognition of deferred tax assets in 4QFY2012.

Standalone operating performance deteriorates further: TTMT recorded a 3.6% yoy (up strongly by 17.9% qoq on 17.1% volume growth) decline in top-line as net average realization declined 10.1% yoy on account of lower share of medium and heavy commercial vehicles (MHCV) in the product-mix. The EBITDA margin deteriorated to 5.2% (down 137bp qoq) on adverse product-mix, higher discounting and marketing spends in passenger vehicles (PV) and MHCV business and lower operating leverage benefits. During the quarter, JLR paid a dividend of GBP150mn to the parent company due to which other income stood at `1,439cr (`130cr in 2QFY2012). In the absence of the dividend income, standalone operations could have reported a net loss.

Outlook and valuation: We retain our positive view on JLR and expect a 12% volume CAGR over FY2012-14E driven by Evoque, new product launches (Range Rover, Range Rover Sport, Jaguar F-type and Sportbrake) and continuous ramp-up in China. Further, favorable market and product-mix and stable commodity prices will help mitigate raw-material cost pressures. At `269, the stock is attractively valued at 6x and 3.2x FY2014E earnings and EV/EBITDA respectively. We maintain our Buy rating on the stock with a sum-of-the-parts (SOTP) target price of `319.

Key financials (Consolidated) Y/E March (` cr) FY2011 FY2012 FY2013E FY2014E

Net Sales 122,128 165,654 192,330 219,770 % chg 32.0 35.6 16.1 14.3 Net Profit 9,043 11,442 11,741 14,126 % chg 492.6 26.5 2.6 20.3 EBITDA (%) 13.8 13.3 12.8 13.1 EPS (`) 28.5 36.1 37.0 44.5 P/E (x) 9.7 6.1 7.3 6.0 P/BV (x) 4.5 2.6 2.0 1.6 RoE (%) 65.6 44.1 31.2 28.9 RoCE (%) 23.6 24.2 22.3 23.5 EV/Sales (x) 0.8 0.6 0.5 0.4 EV/EBITDA (x) 6.1 4.4 3.8 3.2


BUY CMP `269 Target Price `319

Investment Period 12 Months

Stock Info

Sector

Net Debt (` cr) 18,030

Bloomberg Code TTMT@IN

Shareholding Pattern (%)

Promoters 34.7

MF / Banks / Indian Fls 12.3

FII / NRIs / OCBs 28.5

Indian Public / Others 24.5

Abs. (%) 3m 1yr 3yr

Sensex 7.4 7.6 17.0

Tata Motors 12.8 43.2 136.4

Reuters Code TAMO.BO

BSE Sensex 18,902

Nifty 5,760

Avg. Daily Volume 1,484,540

Face Value (`) 2

Beta 1.5

52 Week High / Low 321/160

Automobile

Market Cap (` cr) 71,758

Yaresh Kothari 022-3935 7800 Ext: 6844

[email protected]

Tata Motors Performance Highlights

2QFY2013 Result Update | Automobile

November 7, 2012

Tata Motors | 2QFY2013 Result Update

November 7, 2012

2

Exhibit 1: Quarterly financial performance (Standalone)

Y/E March (` cr) 2QFY13 2QFY12 % chg (yoy) 1QFY13 % chg (qoq) 1HFY13 1HFY12 % chg (yoy)

Net Sales 12,481 12,954 (3.6) 10,586 17.9 23,068 24,578 (6.1)

Consumption of RM 7,810 8,075 (3.3) 5,835 33.9 13,644 14,917 (8.5)

(% of Sales) 62.6 62.3 55.1 59.1 60.7 Staff Costs 749 683 9.7 707 6.0 1,456 1,304 11.7

(% of Sales) 6.0 5.3 6.7 6.3 5.3 Purchases of TG 1,465 1,501 (2.4) 1,598 (8.3) 3,063 2,891 6.0

(% of Sales) 11.7 11.6 15.1 13.3 11.8 Other Expenses 1,804 1,822 (1.0) 1,747 3.3 3,551 3,627 (2.1)

(% of Sales) 14.5 14.1 16.5 15.4 14.8 Total Expenditure 11,828 12,081 (2.1) 9,887 19.6 21,714 22,738 (4.5)

Operating Profit 654 873 (25.1) 700 (6.6) 1,353 1,840 (26.4)

OPM (%) 5.2 6.7 6.6 5.9 7.5 Interest 367 285 28.6 319 14.9 686 600 14.3

Depreciation 447 387 15.6 429 4.1 877 752 16.5

Other Income 1,439 130 - 447 221.9 1,886 307 514.0

PBT (excl. Extr. Items) 1,279 331 286.7 398 221.1 1,677 795 111.1

Extr. Income/(Expense) 255 294 - 161 58 416 292 -

PBT (incl. Extr. Items) 1,024 37 2,705.8 237 331.5 1,261 503 150.9

(% of Sales) 8.2 0.3 2.2 5.5 2.0 Provision for Taxation 157 (66) - 32 390.6 189 (1) -

(% of PBT) 15.3 (179.5) 13.5 13.7 15.0 (0.1) Reported PAT 867 102 749.9 205 322.3 1,072 503 113.1

Adj PAT 1,122 396 183.2 366 206.3 1,488 795 87.2

Adj. PATM 9.0 3.1 3.5 6.5 3.2 Equity capital (cr) 634.8 634.8 634.8 634.8 634.8 Reported EPS (`) 3.5 1.2 183.2 1.2 206.3 4.7 2.5 87.2


Exhibit 2: 2QFY2013 – Actual vs Angel estimates - Standalone

Y/E March (` cr) Actual Estimates Variation (%)

Net Sales 12,481 12,882 (3.1)

EBITDA 654 835 (21.8)

EBITDA margin (%) 5.2 6.5 (125)bp

Adj. PAT 1,122 140 702.8



November 7, 2012

3

Exhibit 3: Quarterly volume performance

Y/E March (units) 2QFY13 2QFY12 % chg (yoy) 1QFY13 % chg (qoq) 1HFY13 1HFY12 % chg (yoy)

M&HCV 45,488 54,439 (16.4) 37,151 22.4 82,639 103,554 (20.2)

LCV 103,179 90,043 14.6 89,483 15.3 192,662 166,886 15.4

Total Commercial Vehicles 148,667 144,482 2.9 126,634 17.4 275,301 270,440 1.8

Utility Vehicles 14,522 12,003 21.0 11,168 30.0 25,690 22,630 13.5

Cars 57,901 50,137 15.5 50,972 13.6 108,873 106,400 2.3

Total Passenger Vehicles 72,423 62,140 16.5 62,140 16.5 134,563 129,030 4.3

Exports (Inc Above ) 14,678 16,192 (9.4) 13,071 12.3 27,749 31,078 (10.7)

Total Sales 221,090 206,622 7.0 188,774 17.1 409,864 399,470 2.6


Standalone operating performance deteriorates further: For 2QFY2013, standalone revenues declined 3.6% yoy (up strongly by 17.9% qoq) to `12,481cr as net average realization declined 10.1% yoy (flat qoq) on account of lower share of medium and heavy commercial vehicles (MHCV) in the product-mix. Total volumes though increased 7% yoy (17.1% qoq) led by continued traction in light commercial vehicle sales and 16.5% yoy (16.5% qoq) jump in passenger vehicle (PV) sales. The MHCV sales however, continue to drag down total volumes (down 16.4% yoy) due to slowdown in industrial activity, higher product and fuel prices and lower availability of freight.

Exhibit 4: Volumes improve 7% yoy


Exhibit 5: Net average realization down 10.1% yoy


On a sequential basis, the EBITDA margins deteriorated further to 5.2% (down 137bp qoq) on adverse product-mix, higher discounting and marketing spends in PV and MHCV business and lower operating leverage benefits. As a result, raw-material cost as percentage of sales surged 410bp during the quarter. However, other expenditure as a percentage of sales declined 200bp led by strict cost control measures. On a yoy basis, the operating margin declined by 150bp yoy primarily due to increase in staff cost (staff cost as % of sales up 130bp yoy). Hence the operating profit declined by 25.1% yoy (6.6% qoq) to `654cr. During the quarter, JLR paid a dividend of GBP150mn to the parent company due to which other income at the standalone level stood at `1,439cr (`130cr in 2QFY2012). As a result, the adjusted net profit came in at `1,122cr. In the absence of the dividend income, standalone operations could have reported a net loss in 2QFY2013.

198,405 186,820

236,329

192,848 206,622

227,111

280,000

188,774 221,090

31.9

17.4

12.7

6.1 4.1

21.6

18.5

(2.1)

7.0

(5.0)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

0

50,000

100,000

150,000

200,000

250,000

300,000

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

(%)(units) Total volume yoy growth (RHS)

9.5 9.3 6.1 5.2

8.1

(4.8) (5.4)(7.1)

(10.1)

(15.0)

(10.0)

(5.0)

0.0

5.0

10.0

15.0

520,000

540,000

560,000

580,000

600,000

620,000

640,000

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

(%)(`) Net average realisation/unit yoy growth (RHS)


November 7, 2012

4

Exhibit 6: EBITDA margin deteriorated further


Exhibit 7: High other income boosts reported net profit


Exhibit 8: Quarterly performance (Consolidated) Y/E March (` cr) 2QFY13 2QFY12 % chg (yoy) 1QFY13 % chg (qoq) 1HFY13 1HFY12 % chg (yoy)

Net Sales 43,403 36,198 19.9 43,324 0.2 86,726 69,486 24.8

Consumption of RM 24,677 21,335 15.7 24,835 (0.6) 49,513 40,677 21.7

(% of Sales) 56.9 58.9 57.3 57.1 58.5 Staff Costs 4,019 2,866 40.3 3,790 6.1 7,809 5,458 43.1

(% of Sales) 9.3 7.9 8.7 9.0 7.9 Purchase of Goods 3,044 2,804 8.6 2,914 4.5 5,958 5,397 10.4

(% of Sales) 7.0 7.7 6.7 6.9 7.8 Other Expenses 6,329 4,689 35.0 6,030 5.0 12,359 9,214 34.1

(% of Sales) 14.6 13.0 13.9 14.3 13.3 Total Expenditure 38,069 31,694 20.1 37,569 1.3 75,638 60,747 24.5

EBITDA 5,334 4,504 18.4 5,755 (7.3) 11,089 8,740 26.9

EBITDA margin (%) 12.3 12.4 13.3 12.8 12.6 Interest 847 634 33.6 804 5.3 1,652 1,490 10.9

Depreciation 1,594 1,331 19.8 1,566 1.8 3,160 2,474 27.7

Other Income 207 170 21.7 239 (13.3) 445 336 32.7

PBT (excl. Extr. Items) 3,099 2,709 14.4 3,623 (14.5) 6,722 5,112 31.5

Exceptional Items 10 439 441 451 496 PBT (incl. Extr. Items) 3,089 2,270 36.1 3,183 (3.0) 6,271 4,616 35.9

(% of Sales) 7.1 6.3 7.3 7.2 6.6 Provision for Taxation 988 363 172.0 869 13.7 1,856 715 159.7

(% of PBT) 32.0 16.0 27.3 17.1 29.6 15.5 PAT 2,101 1,907 10.2 2,314 (9.2) 4,415 3,901 13.2

PATM 4.8 5.3 5.3 5.1 5.6 Minority Interest 23 34 (31.3) 28 (16.6) 51 37 35.3

Associate Companies Profit (3) 4 (180.8) (41) (92.3) (45) 14 (428.0)

PAT after MI 2,075 1,877 10.5 2,245 (7.6) 4,320 3,877 11.4

Adjusted PAT 2,085 2,316 (10.0) 2,685 (22.4) 4,770 4,373 9.1

Equity shares (cr) 634.8 634.8 634.8 634.8 634.8 Reported EPS (`) 6.5 5.9 10.5 7.1 (7.6) 13.6 12.2 11.4

Adjusted EPS (`) 6.6 7.3 (10.0) 8.5 (22.4) 15.0 13.8 9.1


9.7 10.1 8.7 8.3 6.7 6.4 9.1 6.6 5.2

72.9 70.4 73.5 71.2 74.3 74.3 73.9 70.7 74.8

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

(%) EBITDA margin Raw material cost/sales

433 410 574 401 102 174 565 205 867

3.8 3.6 4.0

3.5

0.8 1.3

3.4

1.9

6.9

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

0 100 200 300 400 500 600 700 800 900

1,000

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

(%)(` cr) Net profit (LHS) Net profit margin (RHS)


November 7, 2012

5

Exhibit 9: 2QFY2013 – Actual vs Angel estimates – Consolidated

Y/E March (` cr) Actual Estimates Variation (%)

Net Sales 43,403 43,867 (1.1)

EBITDA 5,334 5,645 (5.5)


Adj. PAT 2,085 2,499 (16.6)


Strong JLR performance; weak standalone results: For 2QFY2013, the consolidated top-line registered a strong 19.9% yoy growth to `43,403cr, which was broadly in-line with our estimates aided by a 35.3% yoy growth in JLR revenues. JLR performance was driven by a strong 13.9% yoy growth in volumes (led by Evoque - 23,340 units and robust growth in China - volumes up 47% yoy) and due to depreciation of INR versus GBP (down 18.2% yoy). The JLR net average realization however, declined 1% yoy (2.6% qoq) primarily on account of higher share of Evoque in the product-mix. Standalone revenues declined 3.6% yoy as net average realization declined 10.1% yoy on account of lower share of MHCVs in the product-mix. On a sequential basis though, the top-line stood flat as the impact of 5.9% decline in JLR revenues (volumes down 7.2% on plant shutdowns due to maintenance activity and holidays) was mitigated by a 17.9% increase (driven by volume growth of 17.1%) in standalone revenues.

Exhibit 10: Net sales up 19.9% yoy led by JLR


On a sequential basis, operating margins declined 99bp to 12.3% (lower than our estimates of 12.9%) due to 70bp and 60bp increase in other expenditure and employee expenses as a percentage of sales. While, other expenditure increased due to higher marketing spends and higher discounts on PVs and MHCVs; employee expenses were higher due to employee addition at Halewood and Solihull plants. On the JLR front, operating margins expanded 40bp qoq to 14.8%, slightly ahead of estimates, led by favorable product-mix (higher share of Range Rover Sport) and exchange rate movement. However, standalone margins deteriorated further to 5.2% (down 137bp qoq) on adverse product-mix, higher discounting and marketing spends in PV and MHCV business and lower operating leverage benefits. The adjusted net profit declined 22.4% qoq (10% yoy) to

28,782 31,442

35,287 33,289 36,198

45,260 50,908

43,324 43,867 36.5

20.7 21.7 23.0 25.8

44.0 44.3

30.1

21.2

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0

0

10,000

20,000

30,000

40,000

50,000

60,000

2Q

FY1

1

3Q

FY1

1

4Q

FY1

1

1Q

FY1

2

2Q

FY1

2

3Q

FY1

2

4Q

FY1

2

1Q

FY1

3

2Q

FY1

3

(%)(` cr) Net sales (LHS) Net sales growth (RHS)


November 7, 2012

6

`2,085cr on account of higher tax-rate due to recognition of deferred tax assets in 4QFY2012. The tax rate stood at 32% as against 16% in 2QFY2012.

Exhibit 11: EBITDA margin down slightly to 12.9%


Exhibit 12: Higher tax rate restricts profitability


Exhibit 13: Subsidiary performance Key Subsidiaries (` cr) 2QFY2013 2QFY2012

Net sales EBITDA EBITDAM (%) Net profit Net sales EBITDA EBITDAM (%) Net profit

Tata Motor Finance 678 105 15.5 69 494 79 16.0 52

Tata Technologies 469 77 16.5 68 378 60 16.0 48

Tata Daewoo (KRW bn) 205 10 4.7 1 213 7 3.3 1

TML Drivelines 125 62 49.5 33 166 98 59.1 55


Exhibit 14: JLR – Income statement (£ mn) 2QFY13 2QFY12 yoy chg (%) 1QFY13 qoq chg (%) FY2012 FY2013E FY2014E

Volume (units) 77,442 68,000 13.9 83,452 (7.2) 314,428 356,394 395,597

Net realization (£) 42,458 42,866 (1.0) 43,596 (2.6) 42,963 42,915 43,773

Net sales 3,288 2,915 12.8 3,638 (9.6) 13,512 15,294 17,316

Operating profit 486 420 15.7 525 (7.4) 1,989 2,227 2,563

OPM (%) 14.8 14.4 14.4 14.6 14.6 14.8

PAT 305 172 77.3 236 29.2 1,481 1,169 1,316


Exhibit 15: 2QFY2013 – Actual vs Angel estimates – JLR

Y/E March (£ mn) Actual Estimates Variation (%)

Net Sales 3,288 3,421 (3.9)

EBITDA 486 479 1.5


Reported PAT 305 264 15.5


13.9 14.3 12.7 12.7 12.4 15.1 13.2 13.3 12.9

64.6 64.7 66.2 66.3 67.2 66.4 66.0 64.3 64.5

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

(%) EBITDA margin Raw material cost/sales

2,223 2,424

2,638

2,000 1,877

3,406 3,521

2,245 2,499

7.7 7.7 7.5

6.0 5.2

7.5 6.9

5.2

5.7

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

(%)(` cr) Net profit (LHS) Net profit margin (RHS)


November 7, 2012

7

Strong JLR performance: JLR reported a strong net sales growth of 35.3% yoy (down 5.9% qoq) in INR terms to `29,371cr primarily on account of depreciation of INR versus GBP by 18.2% yoy. In GBP terms, net sales posted a healthy growth of 12.8% yoy to GBP 3,288mn, which was slightly below our expectations. The JLR performance was driven by a 13.9% yoy growth in volumes (led by Evoque - 23,340 units and robust growth in China - volumes up 47% yoy). The net average realization however, declined 1% yoy (2.6% qoq due to higher share of Evoque in the product-mix. Geography-wise, JLR’s wholesale volumes grew strongly in China (up 47% yoy) and Rest of the World (up 20% yoy). However, Europe volumes declined 6% during the quarter. On a sequential basis, total volumes declined 7.2% on plant shutdowns due to maintenance activity and holidays.

The EBITDA margins improved 40bp yoy and qoq to 14.8%, ahead of our estimates of 14.0%, led by favorable product-mix (higher share of Range Rover Sport) and exchange rate movement. While raw-material cost as a percentage of sales declined 230bp yoy (170bp qoq); employee expenses as a percentage of sales increased by 140bp yoy (120bp qoq) led by increase in headcount at all the three plants (Halewood, Solihull and Castle Bromwich). The reported net profit, posted a robust growth of 77.3% yoy (29.2% qoq) to GBP305mn; 15.5% ahead of our estimates, on account of a forex gain of GBP67mn. Adjusted for the same, net profit stood at GBP238m (up 38.3% yoy and flat qoq).

Exhibit 16: JLR’s quarterly performance


Exhibit 17: JLR’s performance – Region wise


14.1 11.9 11.9 12.6 13.2 13.0 15.4 13.6 12.8

42.3 46.4

55.1 50.7 52.4

65.3

83.2

72.1 72.0

0

10

20

30

40

50

60

70

80

90

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

('000 units) Jaguar Land Rover

0

5

10

15

20

25

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

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1QFY

13

2QFY

13

('000 units) North America UK Europe China All other markets


November 7, 2012

8

Investment arguments

JLR to register a healthy 12% volume CAGR over FY2012-14E: The global luxury vehicle market has managed to post a healthy volume growth in 1HFY2013 despite a challenging macro environment. Volumes of the top four players (Audi, BMW, Mercedez Benz and JLR) are up 9% yoy for the period as growth in the key markets continues to hold up with China registering a strong growth of 22.7% yoy. We expect JLR to deliver a 12% volume CAGR over FY2012-14E on the back of momentum in the luxury vehicle market, coupled with strong Evoque volumes, and new product launches (Range Rover, Range Rover Sport, and Jaguar F). Further, expansion of dealer network in China from 110 to 145 by March 2013 will also aid growth. Additionally, favorable market mix (China's contribution increased from 11% in FY2011 to 17% in FY2012) and sourcing from low-cost countries will help TTMT mitigate raw-material cost pressures to a certain extent.

Domestic business to thrive on the strength of the CV segment: While we expect the commercial vehicle (CV) segment to maintain its healthy growth rate (8-10% CAGR over FY2012-14E) on the back of the strong volume momentum in LCV sales, the PV segment is likely to remain under pressure led by a sluggish domestic demand and weak product offerings. Further, led by cost pressures and higher discounts in the PV segment, we expect the standalone margins to remain under pressure.

Outlook and valuation

We have slightly revised our revenue and earnings estimates on the consolidated front for FY2013. Our EPS for FY2013 is revised downwards by 5.1% largely due to increase in tax-rate from 23.5% earlier to 25% as guided by the management.

Exhibit 18: Change in estimates (consolidated) Y/E March Earlier estimates Revised estimates % chg

FY2013E FY2014E FY2013E FY2014E FY2013E FY2014E

Net sales (` cr) 195,096 219,428 192,330 219,770 (1.4) 0.2

OPM (%) 12.8 13.0 12.8 13.1 9bp 13bp

EPS (`) 39.0 44.9 37.0 44.5 (5.1) (0.9)


We retain our positive view on JLR and expect a 12% volume CAGR over FY2012-14E driven by Evoque, new product launches (Range Rover, Range Rover Sport, Jaguar F-type and Sportbrake) and continuous ramp-up in China. Further, favorable market and product-mix and stable commodity prices will help mitigate raw-material cost pressures. We model in JLR volume growth of 13.3%/11% for FY2013/14 to 356,394/395,597 units.

At `269, the stock is attractively valued at 6x and 3.2x FY2014E earnings and EV/EBITDA respectively. We maintain our Buy rating on the stock with an SOTP target price of `319. We have valued the domestic core business at `83/share, implying 11x FY2014E earnings. Our embedded value of the subsidiaries and investments in TTMT's books (including JLR) works out to `236/share. We have valued JLR at 6x FY2014E earnings.


November 7, 2012

9

Exhibit 19: SOTP valuation

Particulars Parameter Value/Share (`)

Standalone FY2014E (11x P/E) 83

JLR FY2014E (6x PAT) 214

Key subsidiaries and others 22

Target price 319


Key downside risk to our estimates: Lower-than-expected growth in JLR due to uncertainty in key markets (Europe, UK, China and US) will negatively affect our volume growth estimates. Further, softening of domestic interest rates poses an upside risk to our domestic volume estimates.

Exhibit 20: Key assumptions Y/E March (units) FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

M&HCV 122,077 167,828 209,521 221,298 185,890 208,197

LCV 167,834 233,697 287,462 363,891 418,475 477,061

Total CV 289,911 401,525 496,983 585,189 604,365 685,258

UV 39,917 34,124 43,070 56,138 64,559 71,015

Cars 166,920 176,683 192,831 190,728 194,543 210,106

Nano - 30,353 70,432 74,526 87,941 101,132

Total PV 206,837 241,160 306,333 321,392 347,042 382,252

Exports (Inc Above ) 31,611 34,140 58,042 62,890 59,117 66,211

Total volume 496,748 642,685 803,316 906,581 951,407 1,067,511

JLR volume - 193,982 241,571 314,428 356,394 395,597


Exhibit 21: Angel vs consensus forecast

Angel estimates Consensus Variation (%)

FY13E FY14E FY13E FY14E FY13E FY14E

Total op. income (` cr) 192,330 219,770 191,500 213,500 0.4 2.9

EPS (`) 37.0 44.5 37.4 42.7 (1.1) 4.2

Source: Bloomberg, Angel Research


November 7, 2012

10

Exhibit 22: One-year forward EV/EBITDA


Exhibit 23: Tata Motors vs Sensex


Exhibit 24: Automobile - Recommendation summary

Company Reco. CMP (`)

Tgt. price (`)

Upside (%)

P/E (x) EV/EBITDA (x) RoE (%) FY12-14E EPS

FY13E FY14E FY13E FY14E FY13E FY14E CAGR (%)

Ashok Leyland Buy 25 30 21.9 11.4 9.0 5.8 4.9 13.3 15.6 14.1

Bajaj Auto Neutral 1,858 - - 17.1 15.2 11.8 10.0 46.2 41.6 7.3

Hero MotoCorp Neutral 1,946 - - 16.5 14.9 8.6 7.2 48.3 41.9 9.7

Maruti Suzuki Neutral 1,468 - - 22.2 15.6 11.5 7.7 11.9 15.1 36.6 Mahindra & Mahindra Accumulate 917 986 7.5 16.8 14.6 9.7 8.1 24.3 23.4 15.9

Tata Motors Buy 269 319 18.6 7.3 6.0 3.8 3.2 31.2 28.9 11.1

TVS Motor Buy 39 45 16.3 8.0 6.9 3.4 2.8 18.2 18.7 3.5


Company background

Tata Motors is the largest commercial vehicle manufacturer in India with a domestic market share of ~60% and ~57% in the MHCV and LCV segments respectively. The company is also India's third largest PV manufacturer, with a domestic market share of ~12%. The company operates from its plants in Jamshedpur, Pune, Lucknow, Sanand, Pantnagar and Dharwad. TTMT acquired UK based luxury car manufacturer Jaguar Land Rover (JLR) in June 2008; it now accounts for ~65% of its consolidated revenue.

0

50,000

100,000

150,000

200,000

250,000

Apr

-03

Feb-

04

Dec

-04

Nov

-05

Sep-

06

Aug

-07

Jun-

08

May

-09

Mar

-10

Jan-

11

Dec

-11

Oct

-12

(` cr) EV (` cr) 2x 4x 6x 8x

0

50

100

150

200

250

300

Apr

-07

Jul-0

7

Nov

-07

Mar

-08

Jul-0

8

Nov

-08

Mar

-09

Jul-0

9

Nov

-09

Mar

-10

Jul-1

0

Nov

-10

Feb-

11

Jun-

11

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-11

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Jun-

12

Oct

-12

Tata Motors Sensex


November 7, 2012

11

Profit and loss statement (Consolidated)

Y/E March (` cr) FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

Total operating income 70,881 92,519 122,128 165,654 192,330 219,770

% chg 100.1 30.5 32.0 35.6 16.1 14.3

Total expenditure 69,371 84,747 105,310 143,576 167,634 190,914

Net raw material costs 48,025 61,495 79,008 109,468 126,937 145,048

Other mfg costs 2,673 3,452 4,509 5,440 6,539 7,362

Employee expenses 7,297 8,943 9,343 12,298 15,386 17,582

Other 11,376 10,857 12,450 16,371 18,771 20,922

EBITDA 1,509 7,772 16,817 22,078 24,695 28,856

% chg (61.6) 414.9 116.4 31.3 11.9 16.8

(% of total op. income) 2.1 8.4 13.8 13.3 12.8 13.1

Depreciation & amortization 2,507 3,887 4,656 5,625 6,376 7,372

EBIT (997) 3,885 12,162 16,453 18,319 21,483

% chg - - 213.1 35.3 11.3 17.3

(% of total op. income) (1.4) 4.2 10.0 9.9 9.5 9.8

Interest and other charges 2,171 2,465 2,385 2,982 3,348 3,168

Other income 748 1,058 429 662 761 852

Recurring PBT (2,420) 2,478 10,206 14,132 15,731 19,167

% chg - - 311.9 38.5 11.3 21.8

Extraordinary income/ (expense) (291) (1,045) (231) 598 0 0

PBT (reported) (2,129) 3,523 10,437 13,534 15,731 19,167

Tax 336 1,006 1,216 2,633 3,933 4,984

(% of PBT) (15.8) 28.6 11.7 19.5 25.0 26.0

PAT (reported) (2,465) 2,517 9,221 10,901 11,798 14,184

Profit in earnings of associates (52) 85 101 25 25 25

Minority interest (MI) (11) 30 49 82 82 82

PAT after MI (2,505) 2,571 9,274 10,844 11,741 14,126

ADJ. PAT (2,796) 1,526 9,043 11,442 11,741 14,126

% chg - - 492.6 26.5 2.6 20.3

(% of total op. income) (3.9) 1.6 7.4 6.9 6.1 6.4

Basic EPS (`) (9.7) 9.0 29.2 34.2 37.0 44.5

Adj. EPS (`) (10.9) 5.3 28.5 36.1 37.0 44.5

% chg - - 432.8 26.5 2.6 20.3


November 7, 2012

12

Balance sheet statement (Consolidated)


SOURCES OF FUNDS

Equity share capital 514 571 635 635 635 635

Reserves & surplus 5,427 7,827 18,537 32,064 42,010 54,342

Shareholders’ Funds 5,941 8,398 19,171 32,699 42,645 54,977

Minority interest 403 214 247 307 307 307

Total loans 34,974 35,108 30,362 38,704 37,204 35,204

Deferred tax liability 680 1,154 1,464 (2,374) (2,374) (2,374)

Other long term liabilities - - 2,293 2,459 2,459 2,459

Long term provisions - - 4,826 6,071 6,071 6,071

Total Liabilities 41,998 44,873 58,362 77,865 86,312 96,644

APPLICATION OF FUNDS Gross block 58,469 63,823 71,463 89,779 109,939 127,111

Less: Acc. depreciation 33,269 34,232 39,699 49,512 55,889 63,261

Net Block 25,200 29,590 31,764 40,267 54,050 63,849

Capital work-in-progress 10,533 8,916 11,457 15,946 15,391 17,796

Goodwill 3,719 3,423 3,585 4,094 4,094 4,094

Investments 1,257 2,219 2,544 8,918 8,918 8,918

Long term loans and advances - - 9,818 13,658 13,658 13,658

Other noncurrent assets - - 332 575 575 575

Current assets 33,322 42,446 40,881 56,935 61,490 68,238

Cash 4,121 8,743 11,410 18,238 18,816 19,475

Loans & advances 13,456 15,199 8,875 12,244 12,501 14,285

Other 15,745 18,503 20,596 26,453 30,173 34,478

Current liabilities 32,120 41,721 42,019 62,526 71,864 80,484

Net current assets 1,202 725 (1,138) (5,591) (10,374) (12,246)

Misc. exp. not written off 86 - - - - -

Total Assets 41,998 44,873 58,362 77,865 86,312 96,644


November 7, 2012

13

Cash flow statement (Consolidated)


Profit before tax (2,129) 3,523 10,206 14,132 15,731 19,167

Depreciation 2,507 3,887 4,656 5,625 6,376 7,372

Change in working capital 4,709 5,099 4,048 2,280 5,167 2,339

Others (3,263) (1,448) (6,024) (359) - -

Other income (748) (1,058) (429) (662) (761) (852)

Direct taxes paid (336) (1,006) (1,216) (2,633) (3,933) (4,984)

Cash Flow from Operations 739 8,997 11,240 18,384 22,581 23,042

(Inc.)/Dec. in fixed assets (50,078) (3,736) (8,113) (13,783) (19,606) (19,576)

(Inc.)/Dec. in investments 1,408 (962) (325) (962) - -

Other income 748 1,058 429 662 761 852

Cash Flow from Investing (47,922) (3,640) (8,008) (14,083) (18,844) (18,724)

Issue of equity 3,958 1,405 4,700 (164) - -

Inc./(Dec.) in loans 23,389 135 (4,746) 8,342 (1,500) (2,000)

Dividend paid (Incl. Tax) 677 365 1,002 1,481 1,659 1,659

Others (19,448) 3,113 1,521 7,132 - -

Cash Flow from Financing 47,471 (1,209) (565) 2,527 (3,159) (3,659)

Inc./(Dec.) in cash 288 4,148 2,666 6,828 578 660

Opening Cash balances 3,833 4,121 8,743 11,410 18,238 18,816

Closing Cash balances 4,121 8,743 11,410 18,238 18,816 19,475


November 7, 2012

14

Key ratios

Y/E March FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

Valuation Ratio (x) P/E (on FDEPS) - 50.3 9.7 6.1 7.3 6.0

P/CEPS 1656.8 14.2 6.3 4.3 4.7 4.0

P/BV 11.9 9.4 4.5 2.6 2.0 1.6

Dividend yield (%) 0.5 1.1 1.5 1.5 1.7 1.7

EV/Sales 1.6 1.1 0.8 0.6 0.5 0.4

EV/EBITDA 76.2 14.1 6.1 4.4 3.8 3.2

EV / Total Assets 2.7 2.4 1.7 1.2 1.1 1.0

Per Share Data (`)

EPS (Basic) (10.9) 5.3 27.8 44.5 37.0 44.5

EPS (fully diluted) (9.8) 5.3 30.9 49.5 37.0 44.5

Cash EPS 0.2 19.0 42.4 62.2 57.1 67.8

DPS 1.2 3.0 4.0 4.0 4.5 4.5

Book Value 18.4 25.9 60.0 102.8 134.1 173.0

Dupont Analysis

EBIT margin (1.4) 4.2 10.0 9.9 9.5 9.8

Tax retention ratio 1.2 0.7 0.9 0.8 0.7 0.7

Asset turnover (x) 2.7 2.6 3.1 3.5 3.5 3.5

ROIC (Post-tax) (4.5) 7.9 27.6 27.9 25.2 25.1

Cost of Debt (Post Tax) 10.8 5.0 6.4 7.0 6.6 6.5

Leverage (x) 2.4 3.7 1.5 0.5 0.3 0.2

Operating ROE (40.6) 18.7 58.6 39.2 30.4 28.2

Returns (%)

ROCE (Pre-tax) (3.1) 8.9 23.6 24.2 22.3 23.5

Angel ROIC (Pre-tax) (2.7) 11.5 27.5 32.5 31.3 31.5

ROE (38.2) 21.3 65.6 44.1 31.2 28.9

Turnover ratios (x)

Asset Turnover (Gross Block) 2.0 1.5 1.8 2.1 1.9 1.9

Inventory / Sales (days) 37 44 38 36 38 38

Receivables (days) 18 24 20 16 17 17

Payables (days) 123 134 110 123 122 121

WC cycle (ex-cash) (days) (3) (22) (31) (40) (50) (51)

Solvency ratios (x)

Net debt to equity 5.0 2.9 0.9 0.4 0.2 0.1

Net debt to EBITDA 19.6 3.1 1.0 0.5 0.4 0.2

Interest Coverage (EBIT / Int.) (0.5) 1.6 5.1 5.5 5.5 6.8


November 7, 2012

15

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment.

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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement Tata Motors

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) Reduce (-5% to 15%) Sell (< -15%)

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Documents

TTMT 2QFY2013 RU - smartinvestor.business-standard…smartinvestor.business-standard.com/BSCMS/PDF/tatamotors_071112… · Bloomberg Code TTMT@IN Shareholding Pattern (%) Promoters