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  1. Maintain ‘buy’ on Tata Motors with TP of Rs 400

Maintain ‘buy’ on Tata Motors with TP of Rs 400

In 4QFY18, Tata Motors reported consolidated EBITDA margin of 13.1% (-220bps YoY), impacted by subdued performance at JLR lead by higher marketing expense, and one-time charges for projects de-prioritised under “Fit for Future”.

By: | New Delhi | Published: May 25, 2018 1:13 AM

In 4QFY18, Tata Motors reported consolidated EBITDA margin of 13.1% (-220bps YoY), impacted by subdued performance at JLR lead by higher marketing expense, and one-time charges for projects de-prioritised under “Fit for Future”. Higher sales volumes in China, favourable mix and adoption of accrual accounting in China, partially blunted the impact from higher D&A and marketing expense.

At the standalone level, EBITDA margin improved 250bps YoY to 6.9% due to positive operating leverage arising from 34% volume growth in CV sales. Also, strong growth in new models, helped improve the market share to 5.7% in PVs. The Company’s focused ‘Impact’ programme ranging from plugging gaps in CV portfolio, reducing vehicle platforms in PVs and other cost reduction efforts also aided standalone business performance. Basis the current headwinds in major market like UK, Europe and to some extent US, we estimate 9% CAGR in JLR volumes over FY18-20E.

During the same period, domestic PVs are likely to record 11%+ CAGR, driven by new models covering wider segments in PVs. We maintain BUY with a revised TP of Rs 400. Higher-than-estimated stress in JLR volume/margin and adverse currency movements are key risks to our view.

In 4QFY18, JLR reported revenues of GBP 7.6bn driven by wholesale volume growth of 2.4%YoY and realisation growth of 1.5%. JLR EBITDA margin stood at 12.2%. Consequently, JLR reported PAT stood at GBP 264mn. In the standalone business, net sales grew by 46%YoY to Rs 19,800 crore. Robust growth in MHCV led to positive operating leverage, leading to a sharp recovery in EBITDA margin to 6.9%. At the consolidated level, company recorded EBIDTA of `11,900 crore with a 13.1% margin.

In the JLR business, operating performance was subdued largely due to headwinds in UK and Europe markets, with respect to concerns of tax hike on diesel cars. This reflects in the FY18 retail sales for UK and Europe, with majorly China pulling up the overall sales. In China, CJLR EBITDA margin during the quarter improved to 36.7% (+930bps), due to adoption of accrual accounting for local market incentives in Q4.

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