Our estimates build in more conservative assumptions than the management guidance. Reiterate BUY with unchanged target price of Rs 445.
We believe JLR’s management is taking steps to achieve its financial targets despite significant near-term challenges. The company acknowledged that volume growth will remain subdued due to recent challenges but they are on track to achieve their financial targets. Our estimates build in more conservative assumptions than the management guidance. Reiterate BUY with unchanged target price of Rs 445.
High proportion of diesel vehicle sales in Europe (87% of EU/UK volumes in 4QFY18 versus 93% in 4QFY17). Diesel vehicle sales form 35% of JLR’s global volumes, which are mostly in Europe (including UK), (2) decline in UK volumes due to Brexit uncertainty and (3) continued high incentives in the US market. The company indicated that it is quite comfortable with its target to achieve an EBIT margin of 4-7% over FY2019- m21 and 7-9% over the long-term, (2) the company plans to grow volumes at a rate higher than the premium luxury industry volume growth. Volume growth will be driven by E-Pace, XE (localized production in China), I-Pace and new RR and RR sport models and (3) capex spend will be GBP4.5 bn annually over FY2019-21, which will come down to 12-13% of revenues over the long term. Capex will be utilized for (1) increasing capacity at Slovakia plant (first phase expansion of 150,000 units annually, which can be upgraded to 300,000 units) and (2) launch of four new vehicles over FY2019-24 period; transform ICE/hybrid/electric drive train options across all its models by FY2020.
JLR intends to increase the sales volume mix of plug-in hybrid and battery electric vehicles to 20% over the medium term from negligible till FY2018. The company also indicated that it will spend 27% of total capex + R&D spend on capacity expansion, 13% on electrification, 9% on other powertrains and 51% of new products.
The management believes that I-Pace (annual capacity of 43,000 units) is a game changer product for the company. I-Pace is very competitively priced for a product which gives (1) best in class performance and (2) a higher driving range than competition due to regenerative braking, light weighting and an integrated cooling system.