Analyst Corner: Maintain ‘buy’ on Tata Motors with TP at Rs 380

By: |
May 20, 2021 8:10 AM

Considering the uncertainty in 1H FY22 given semiconductor availability plus the commodity and currency headwinds, the guidance was encouraging.

tata motorsThe domestic performance was largely in line with expectations with the Ebitda margin at 6.9%, up 100bps q-o-q.

JLR reported EBIT margin of 7.5% for 4Q FY21, a shade better than expected: Even excluding the hedging gain of c150bps, the margin was 6%, broadly in line with 3Q FY21. The company maintained guidance of Ebit growth of 4% for FY22 and volume growth of 20%. Considering the uncertainty in 1H FY22 given semiconductor availability plus the commodity and currency headwinds, the guidance was encouraging.

Overall, the breakeven volume has come down to 400k units now (we see sensitivity of c70-80bps per 1K higher volumes per month), and hence, the better traction in volumes could have a significant positive impact on margins, particularly in FY23e and FY24e. Management reiterated most of the other long-term targets.

Defender continues to see a growing order book (+20K units now) and should partly help the mix in FY22. Supply shortages and improved product quality should support low variable marketing expenses and warranty costs in the near term.

The domestic performance was largely in line with expectations with the Ebitda margin at 6.9%, up 100bps q-o-q. Strong operating leverage was partially offset by higher commodity prices. From a segment perspective, the domestic commercial vehicle (CV) margin at 9% is already close to the target of a double-digit margin by 2H FY22. Management reiterated that the breakeven volume for CVs has fallen by c25% over the past year. The c2.5% price rise in April and positive operating leverage in FY22 should help margins further.

The passenger vehicle (PV) business saw its highest Ebitda for the past decade, led by strong acceptance of the new product range. We expect Tata Motors to further improve its market share with the impending launch of HBS (a compact SUV) by 4Q FY22. The second wave of Covid-19 remains a key risk to our domestic PV and CV volume forecasts. Retail sales has been impacted significantly so far in 1Q FY22, but management expect demand to recover from 2Q FY22, led by the further shift to personal mobility using PVs and the underlying demand for CVs driven by infrastructure, mining and e-commerce.

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