Tata Motors stock rating: Kotak says Buy, pegs target price at Rs 535

JLR retail volumes increased by 10% y-o-y in November 2017, the first month of near double-digit growth after five months of disappointment.

JLR retail volumes increased by 10% y-o-y in November 2017, the first month of near double-digit growth after five months of disappointment. Land Rover volumes grew by 17% y-o-y led by new Discovery and RR Velar. JLR needs to report 8% y-o-y growth during the December 2017-March 2018 period to meet our FY2018 estimates. We feel confident of JLR achieving this as new Velar, launch of E-Pace and Discovery will boost volumes. Maintain BUY. JLR retail volume rose by 10% y-o-y to 52,332 units in November 2017. Jaguar volumes declined by 6% y-o-y while Land Rover volumes improved by 17% y-o-y led by addition of Range Rover Velar and new Discovery. China volumes grew by 19% y-o-y to 13,808 units driven by (1) continued ramp-up of local production in Chery JV (JV volumes up 29% y-o-y to 7,747 units) while imported models increased by 8% y-o-y.

North America, the UK and rest of the world markets posted 8-20% y-o-y growth in volumes on a y-o-y basis.

In terms of models, Jaguar XF volumes remained strong in November 2017 (+12% y-o-y). Jaguar F-type volumes grew by 18% y-o-y while Jaguar XE volumes declined by 33% y-o-y. For the Land Rover brand, Range Rover and RR Sport volumes declined by 4% and 27% y-o-y respectively as the company is clearing off inventory before refresh of RR and RR Sport from January 2018 on wards.

Discovery Sport volumes increased by 4% y-o-y while Discovery volumes increased by 70% y-o-y. Range Rover Velar sold 5,773 units in November 2017, which is quite impressive in our view.

We expect JLR’s volume growth to pick up strongly over the next few months led by ramp-up of retails sales of new Discovery and RR Velar, launch of E-Pace in all markets and refresh of Range Rover and Range Rover Sport from January 2018. We expect JLR’s overall volumes to grow by 8% y-o-y in FY2018E.

We expect profitability to improve over the next two years led by lower Forex losses and operating leverage benefits. We expect 7-9% EBIT margin in our FY2018-19E estimates as compared to the management guidance of 8-10% EBIT margin over the medium term. We reiterate our positive stance on the stock and maintain BUY rating with unchanged SoTP-based target price of Rs 535.

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