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New Range Rover to drive JLR margins in FY14: Credit Suisse

FY2013 has been a rather forgetable year for Tata Motors. While the domestic business continues to see sluggish demand, margins over at its luxury Jaguar Land Rover unit have been under pressure (Q3 operating margin slipped to 14 percent) due to product mix and higher marketing costs among other reasons.

May 08, 2013 / 09:10 AM IST
 
 
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FY2013 has been a rather forgetable year for Tata Motors. While the domestic business continues to see sluggish demand, margins over at its luxury Jaguar Land Rover unit have been under pressure (Q3 operating margin slipped to 14 percent) due to product mix and higher marketing costs among other reasons.


While domestic pressures continue, Credit Suisse feels growth is expected to speed up over at JLR, especially powered by the new Range Rover (RR) and Range Rover Sport.


"The key reason for lower incremental EBITDA in FY2013 has been that almost the entire volume addition has happened on lower ASP (average selling price) products viz the Evoque and the Freelander. In FY14, a large part of the volume addition at Land Rover will be on the new RR and the RR Sport, driving up both ASPs and margins," Credit Suisse analysts Jatin Chawla and Akshay Saxena, said in a report.


The analysts expect ASPs to increase 8 percent in FY14, compared with a 1.5 percent decline in FY13 and margins are likely to expand 70 bps, versus a 20bps decline seen last year.


They are expecting a "solid" over GBP 600 million EBITDA accretion in FY14. This will be driven by GBP 300 million from higher volumes, GBP 190 million in higher ASPs and 100 million from higher margins.


Strong JLR sales growth will be driven by increasing demand for luxury vehicles in China. JLR is is doubling its network there, which coupled with the demand should help the company clock 25-30 percent growth in China, higher than the 15-20 percent expected for its rival luxury car makers, they added.


The investment bank has an "outperform" rating on Tata Motors with a target price of Rs 365.

Tata Motors was up 2.4 percent at Rs 298 on NSE in afternoon trade on Tuesday.

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