Ventura Securities has recommended hold rating on Tata Motors, in its February 20, 2013 research report. According to the research firm, the company's revenue growth is expected to be driven by the JLR portfolio led by the Evoque, Jaguar XF and sustainable demand in China and other emerging markets.
Ventura Securities has recommended hold rating on Tata Motors , in its February 20, 2013 research report. According to the research firm, the company's revenue growth is expected to be driven by the JLR portfolio led by the Evoque, Jaguar XF and sustainable demand in China and other emerging markets.
"Tata Motors posted a mere 1.4% YoY growth in total income to Rs. 45821.3 crore as against Rs. 45199.2 crore in Q3FY12. Operating profits declined by 17.3% on YoY basis to Rs 5657.3 crore. Operating margins contracted by 280 bps on YoY basis to 12.3% in Q3FY13. The reason for this decline was margins decline in standalone business and change in product mix at JLR (which led margin decline in JLR business). Consolidated tax rate for the quarter stood at 38.7%.
Tata Motor’s standalone performance was disappointing as revenues declined by 20.3% yoy to Rs. 10630.1 Total volumes fell by 10.2% on YoY basis to 2,03,852 units while average realization were lower by 8% on YoY basis. Exports also degrew by 18% on YoY basis due to problems in Bangladesh and Sri Lanka. Consequently, operating profits fell sharply by 83% yoy to Rs. 145.1 crore and margins stood at 1.4% (-500 bps yoy, -390 bps qoq). The stand alone business reported a loss of Rs 458.5. The current capacity utilization in the M & CV segment is ~ 50-55% while capacity utilization in the passenger car segment in less than 50%
Jaguar Land Rover continued the strong volume growth as its total volumes were higher by 9.9% YoY to 94,928 units mainly led by a 12.3% yoy growth in Land Rover volumes. Geographically, China is the highest contributor to the total volumes of JLR at 21.0% ahead of North America which contributed 18.9%.
The Chinese market has been growing at ~65% YTD. Already, ~120-130 dealerships have been set up in China. The Chinese market will witness more dealer additions in the coming quarters as the potential for growth in volumes exists. The planned products for CY13 include XF Sportbrake, AWD and smaller engine derivatives of XF and XJ. The management also started the smaller three litre engines along with all-wheel drive options for XF and XJ were being worked upon for specific geographies.
Tata Motors reported Q3FY13 was below street expectations. Weak macro economic outlook, competitive pricing pressures leading to decline in realization on yoy basis has severely impacted standalone business leading to loss of Rs 458.5 crore. Increasing competition in the segment could further threaten the market share of Tata Motors. Further, the PV industry continues to remain challenging with higher inflation and fuel prices dampening consumer sentiments. We expect revenue growth to be driven by the JLR portfolio led by the Evoque, Jaguar XF and sustainable demand in China and other emerging markets. We believe that the upcoming new launches at JLR will further aid the volume growth and is the key variable to watch. At a CMP of Rs. 304 the stock is trading at 7.5x and 6.8x FY14E and FY15E earnings estimates and we recommend a HOLD with target of Rs. 328 representing a potential upside of 7.9%," says Ventura Securities research report.
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