The Tata Motors' Q2FY14 consolidated operating performance marginally exceeded our expectations (after annualising the lumpy impact of local incentives received at Jaguar Land Rover in Q2FY14). Better-than-expected margins at Jaguar Land Rover more than offset the continued weak margin performance of the standalone business. Whilst we have upgraded our JLR volume and margin estimates (in line with the recent/Q2FY14 trends), continued slowdown in volumes/margin make us downgrade our standalone estimates.
Overall, we have upgraded our FY14 consolidated revenue estimates by 1%, Ebitda (earnings before interest, taxes, depreciation, and amortisation) by 4%, net earnings by 5% and SOTP(sum-of-the-parts)-based valuation to R400 per share (versus R375 earlier). We maintain our positive view on the JLR business and hence we retain our 'buy' stance on Tata Motors shares.
While consolidated operating performance marginally exceeded our expectations, consolidated revenues and consolidated Ebitda margin, at 2% and 45 bps,were ahead of our expectations. Consolidated Ebitda exceeded our expectations by 5%. Revenues of the standalone operations were in line, however, Ebitda margin at 0.9% was lower than our expectations of 1.2%, resulting in standalone Ebitda coming in a significant 20% below our estimates. For JLR, while realisations were in line with our expectations, Ebitda margin at 16.6% was better than our expectation of 16.2%, resulting in JLR’s Ebitda beating our expectations by 3%. Overall, consolidated PBT (profit before tax) was 5% ahead of our expectations.
Jaguar Land Rover: In Q2FY14, JLR received local incentives of GBP 79 million which is an exceptional item (netted off in ‘other expenses’) but would accrue once every year. Raw material costs (y-o-y decline of 172 bps) and employee costs (y-o-y decline of 109 bps) led to Ebitda margin improvement of 178 bps y-o-y (post R&D charge). Ebitda margin (post R&D charge) was at 16.6%. There was a foreign exchange gain of GBP 70 million on revaluation of loans (USD-denominated). The margin for the quarter was helped by (i) better product mix (higher share of new Range Rover and Jaguar F-Type); (ii) favourable regional mix (higher share of volumes