China and the US, which account for 45% of Jaguar LandRover’s volumes, have been particularly robust. For JLR, this has echoed in falling incentives, volume momentum and robust margins. Our target price implies FY15e EV/Ebitda of 7.5x for India business and 3.8x for JLR. The valuation for JLR is in line with BMW (3.5x CY14e), adjusting for differences in R&D accounting.
Deutsche China economist Jun Ma is increasingly constructive on China GDP —he now projects 8.6% and 8.2% GDP growth for CY14e and CY15e. We expect US GDP growth to improve from 1.8% in CY13 to 3.2% and 3.5% in CY14e and CY15e. For JLR, we forecast FY14e, FY15e, and FY16e volumes at 4.2 lakhs, 4.62 lakhs, and 5.38 lakhs, respectively, implying a three-year CAGR of 13%. YTD, JLR volumes have grown 17%, driven by the US (20%) and China (22%). We expect stable margins in the medium term and a fall in FY16e on account the introduction of the smaller Jaguar.
We expect Tata Motors to generate an Ebitda of R47 billion in FY16e, in line with its previous peak in FY11. While the car and UV businesses are likely to remain under pressure, we expect a revival for CVs in FY15e.