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Tata Motors Q3FY18: Revenues jumped by 58% yoy on strong volume growth; Maintain Buy

LKP Securities | 09 Feb, 2018  | Follow Author | Add to my Favourites 
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Q3 JLR numbers hit by multiple levers, results below expectations

Q3FY18 consolidated numbers posted 9.8% yoy growth at the topline as both JLR volumes grew slowly, but domestic volumes excelled. At the standalone level, revenues jumped by 58% yoy on strong volume growth both at CV as well as PV segments. Prudent cost savings coupled with higher volumes led to a sharp surge in margins from 0.8% to 7.6%. Bottomline at this business witnessed breakeven before management’s expectations. At JLR, 2.2% increase in wholesales volumes was subdued as strong China volumes got somewhat offset by weak UK, US and Europe volumes. JLR EBITDA margins came down at 9% from 11.8% qoq and remained flattish yoy. This was due to weak volumes in the geographies mentioned above, higher investments in new launches, phasing out of Discovery and forex losses (₹1.26 bn). Net profits at JLR reduced by 50% yoy at GBP89 mn. While consol PAT went up by 9.8% yoy.

Outlook and Valuation

TAMO reported weak set of numbers in Q3, as JLR profitability and specific geographic worries weighed a lot on the numbers. On the domestic front, the company gained market share in the PV segment with the launches of Tiago, Hexa and Tigor. MHCV business continued its strong performance post DeMon and BS IV implementation with good monsoon and infrastructure and mining activities inching ahead. New LCV launch and couple of new platforms in the PV space getting launched along with the recent SUV launch of Nexon may act as future growth engines for the company on the domestic side. On JLR front, products such as the recently launched LR Velar, F-Pace, E-Pace and I-Pace EVs and ramping up of recently launched Discovery may act as triggers to growth. Strength in China and ROW countries may somewhat negate the weakness in the UK, Europe (seasonal factors and Brexit) and expected softness in the US. China JV is continuously posting strong sales and profitability, which we expect to intensify further. On the profitability front, the negative impact of unwinding of forex hedges came back to haunt again in Q3. Favorable currency movement may help stabilizing of margins. More than 70% of hedge book losses getting reduced by FY19E end will lead to a sequential uptick in JLR margins hereon negating the impact of higher launch costs and EVs launch and ramp-up costs. Management expects a continued to slowdown of these losses over next 18 months. Eventual launch and ramp up of Slovakian plant will not only spur volumes but also reduce the per unit vehicle cost due to the geographical advantage it has over UK. Improving product mix in the form of new launches may also provide the impetus. In the domestic business, expected higher CV sales may lift up the margins further. On overall basis, we expect an improved performance from TAMO in the ensuing quarters. We have reduced the JLR volumes estimate a bit for FY18E/19E on volume concerns in the UK and the US. We have also introduced FY20E estimates and now value the company at a target price of ₹454. Maintain BUY.


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About LKP Securities

What started as one of India’s first securities brokerage houses in 1948 is today one of the country’s largest multi dimensional financial services group. LKP Securities is a Non Banking Finance Company (NBFC) registered with Reserve Bank of India & a listed public limited company having a networth of Rs.142 crores as on FY10. They are India's first financial group to be awarded the prestigious ISO 9002 certified KPMG Quality Registrar, USA, for certain businesses.


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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