JLR reported 21% y-o-y growth in retail sales in March 2017 which was driven by strong double-digit growth across regions. UK volumes grew by 27% y-o-y led by the commencement of sales of new Discovery model. China, Europe and North America volumes also increased by 19-21% y-o-y. We expect volume growth momentum to remain strong over the next two years led by the ramp-up of Discovery and launch of new models. We believe that improvement in profitability over the next one year will be key for stock performance hereforth. We maintain Buy rating with revised TP of `540.
JLR retail volumes up 21% y-o-y in March 2017; strong all-round performance
JLR retail volumes increased by 21% y-o-y to 90,838 units in March 2017. Jaguar volumes increased by 83% y-o-y led by the launch of F-Pace while Land Rover volumes grew by 5% y-o-y. The company reported strong double-digit volume growth across regions. In particular, demand in UK was quite strong as retail sales grew by 27% y-o-y in March 2017 as compared to low single-digit growth over the last five months. China, Europe and North America volumes grew by 19-21% y-o-y. In China, volume growth was largely driven by the ramp-up of local production in the Chery. China JV retail increased 47% y-o-y to 6,424 units in March 2017.
In terms of models, volumes of Jaguar F-Pace and Discovery Sport continued to remain strong in March 2017. Discovery Sport volumes grew by 13% y-o-y even on a high base which is quite positive, in our view. The impact of run-down of old Discovery model moderated in March 2017 as retail sales of new Discovery has commenced and the company has retailed around 5,000 units so far. We expect Discovery volumes to ramp-up over the next 2-3 months as the model gets launched across all major markets. We note that Range Rover and Range Rover Sport volumes also increased by 20% and 12% y-o-y respectively. Overall, we expect JLR’s volume performance to remain strong and the company to deliver 11% volume CAGR over FY2017-19e driven by ramp-up of new Discovery volumes and launch of mid-sized Range Rover Velar in H2CY17.
Lower our margin assumptions for JLR on higher hedge losses; maintain Buy with TP of `540
We lower our FY2018-19e Ebitda margin assumptions for JLR by 40-90 bps as we build in higher forex losses in our estimates. We still expect JLR’s Ebitda margin to improve to 13.7%/15.6% in FY2018-19e led by platform consolidation benefits, non-recurrence of one-off warranty expenses incurred in FY2017, and operating leverage benefits. We also bake in lower profitability in the standalone business due to potential headwinds in the domestic MHCV industry. Consequently, we cut our consolidated FY2017-19e EPS estimates by 7-12%. We reiterate our positive stance on the stock and maintain Buy rating with SOTP-based target price of `540 on roll over of target price to March 2017.