1. Overweight rating on Tata Motors: JLR, recovery in CV sales drive growth for company

Overweight rating on Tata Motors: JLR, recovery in CV sales drive growth for company

Tata Motors is benefitting from healthy sales growth at JLR, driven by new product launches. The F Pace crossover from Jaguar will be launched shortly and along with the XE is expected to drive growth.

By: | Updated: April 4, 2016 2:46 AM

Tata Motors is benefitting from healthy sales growth at JLR, driven by new product launches. The F Pace crossover from Jaguar will be launched shortly and along with the XE is expected to drive growth. The India business is benefitting from a recovery in the CV cycle. A medium term opportunity is emerging in the defence segment as the government is expected to order military vehicles under its ‘Make in India’ initiative. We re-iterate OW.

JLR – sales on track as XE is ramping up, F Pace volumes to drive growth: JLR is witnessing healthy growth momentum, driven by new product launches. The F Pace crossover from Jaguar will be launched shortly and is expected to expand Jaguar’s portfolio. This model along with the XE is expected to drive growth.

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India Business—CV sales are driving sales growth: The local business is benefitting from recovering CV sales – along with the healthy growth in M/HCVs, the light truck segment has also started witnessing a pick-up in sales, driven off a low base. Besides, the OEM is launching new models in the passenger car segment, which will benefit sales over FY17-18e.

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Defence related opportunity–positioning itself from a traditional logistics support provider to a combat vehicle player: While Tata Motors currently supplies vehicles to the Indian army, with the changing procurement rules by the government under the ‘Make in India’ initiative, the OEM is now targeting a larger opportunity from the military segment. They are bidding for combat vehicles and forged an alliance with Bharat Forge Limited and General Dynamics Land Systems US for the Future Infantry Combat Vehicle (FICV) programme.

Price target: We are rolling forward our PT timeframe to Sep 16 and set a sum-of-the-parts based PT of R440. Key risks include increases in discounting trends by luxury OEMs, macro headwinds in key markets and a delayed recovery in India.

JLR: JLR is witnessing healthy growth momentum, driven by new product launches as the Discovery Sport and the Jaguar XE have received a favourable response. Sales are growing at 20%+ in the Western markets (US and Europe) while sales in China are rising off a low base. The F Pace crossover from Jaguar will be launched shortly and is expected to expand Jaguar’s portfolio further. This model along with the XE is expected to drive growth.

The margin trajectory though has normalised from elevated levels earlier to the 14-15% range as new models are driving sales and marketing expenses have risen.

India Business: The OEM is launching new passenger cars in FY17 including the Tiago, which will be rolled out next month. This will be followed up with the Hexa MPV and the Kite compact sedan in the year. We expect these models to drive growth over FY17-18e.

Defence related opportunity: The OEM is now targeting a larger opportunity from the military segment. However, the supplies will ramp up over the medium term, as the orders are awarded after a stringent testing phase. Currently, defence related sales are less than 10% of revenues.

Recently, Tata Motors has signed a follow-on contract for the supply of an additional 619 units of its high-mobility (HMV) 6X6 multi-axle truck, to the Indian Army. Being built with a material handling crane, the vehicle is meant for the loading-unloading and transportation of ammunition pallets, spares and other operational equipment. This is in conjunction, to an earlier order awarded to Tata Motors for 1239 units of its 6X6 High Mobility Vehicles. In line with the government’s ‘Make in India’ initiative, Tata Motors will further develop a comprehensive range of defence vehicles including front line combat vehicles such as the Future Infantry Combat Vehicle.

They have forged an alliance with Bharat Forge Limited and General Dynamics Land Systems of the US, for the FICV programme. Tata Motors will lead the consortium, playing on its strengths related to Design, Development & Integration of mobility platforms, with Bharat Forge Ltd as a partner, bringing on board its competence in local manufacturing. General Dynamics Land Systems will bring in expertise in combat vehicle programmes, as a SOSI (a system of systems integrator), enabling Tata Motors, the lead integrator, to offer an indigenous solution for this programme.

In combat vehicles, Tata Motors has developed the Kestrel Infantry Combat Vehicle, and the Light Armoured Multi-Role Vehicle (LAMV).

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