Tata Motors (TTMT) is a leading global automobile manufacturer with a wide range of PVs, SUVs, buses, trucks, pick-ups and defence vehicles.
Tata Motors (TTMT) is a leading global automobile manufacturer with a wide range of PVs, SUVs, buses, trucks, pick-ups and defence vehicles. JLR’s profitability to improve, driven by market recovery and ramp-up in newly-launched Defender: JLR volumes started to show early signs of recovery from 2HCY19, driven by the new Evoq-ue, a ramp-up in I-Pace, and course corr-ection in China, which first got derailed due to Covid and remains so due to a semi-conductor shortage. While the shortage is hitting wholesale volumes, retail volumes are seeing good recovery in all key markets (reflected in the order book of over 110k units). JLR should benefit from a ramp-up in the Defender. We expect JLR (including JV) to post a 13% volume CAGR over FY21–23E.
India business on recovery path; PV nearing cash break even: The India business’ recovery was severely hit by Covid 2.0. Nonetheless, the India CV business is on a strong footing and prim-ed for strong cyclical recovery in both M&HCV (42% CAGR over FY21–23E) and LCV (~21% CAGR). Management expe-cts 2HFY22 to be better than 1HFY22 and momentum to be maintained over the next 2–3 years. It aspires for market share of over 50% in CVs and double-di-git Ebitda margins. For M&HCV, it has gained market share in the last few qua-rters owing to superior SCR technology, and aspires to boost market share to 60%, from 58% currently.
Head start in EV: India PV has two platforms, viz Alpha Arc (Altroz and Punch) and Omega Arc (bigger vehicles such as Harrier and Safari), which are scalable and can be electrified. It has a gap in 4.3mtr SUV, for which it needs to tweak the platform. In India PV, it has 70% market share in EVs and thus has a head start in the EV space — the competition is not as geared up. It plans to launch 1-2 EVs every year by convert-ing existing ICEs into EVs; it would have 10 pure EVs by 2025. It aims to achieve 25% of PV volumes from EVs by 2025.
Valuation and view: Recovery is underway in all the three businesses of TTMT. While the India CV business would see cyclical recovery, the India PV business would witness structural recovery. While there would be no near-term catalysts from the JLR business, the India business (~50% of SoTP) would post continued recovery. The stock trades at 9.6x FY23E consolidated EPS and 3.2x EV/Ebitda. We maintain our Buy rating, with TP of INR400/share (Mar’23E SoTP-based).