Prabhudas Lilladher recommended accumulate rating on Tata Motors with a target price of Rs 438 in its research report dated February 06, 2018.
Prabhudas Lilladher's research report on Tata Motors
Tata Motors' Q3FY18 performance was below our expectations with consolidated adjusted profit at Rs11.1bn, up ~69% YoY but lower ~54% QoQ (below PLe: Rs16.4bn). Jaguar Land Rover's (JLR) operating performance too disappointed with an operating margin at 10.9%, higher 80bps YoY but lower 90bps QoQ and below our expectations of 12%. Adjusted profit for JLR in Q3FY18 was at GBP52mn, lower 67% YoY. Standalone performance, however, again saw significant improvement this quarter with operating margins coming in at 8.5% (up 150bps QoQ) and adjusted profit for the quarter at Rs450mn (after five consecutive quarters of reported loss). In its outlook for JLR, the company has again mentioned that it is planning to achieve an 8-10% EBIT margin in the medium-term on the back of continued launch of new products and technologies to drive growth with greater operating leverage (~6% in FY17 & 2.6% in Q3FY18, we have reduced our expectations from 6-7% to ~4% in FY19E). Further ramp-up of recently launched models like Range Rover Velar (up ~20% YoY over Q3FY18) and Discovery refresh, hybrid refreshes of Range Rover & Range Rover Sport coming in Q4FY18 and other new launches planned in can provide additional volume traction for JLR over FY18-19, along with product mix improvement. The management has been highlighting a roadmap to improve the performance of the standalone entity which is now finally visible.
We roll forward to Mar'20E and maintain "Accumulate" with a price target of Rs438 (earlier Rs474).
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