Accumulate Tata Motors; target of Rs 192: Prabhudas Lilladher

Prabhudas Lilladher's research report on Tata Motors

Tata Motors Investor day highlighted details about its medium-to-long term strategy (Turnaround 2.0) for the domestic business. With focus on topline growth, customer centricity, enhanced dealer engagement, agile cost management and a lean & accountable organization, the management reiterated their key objectives: 1) Outperforming the industry for both the CV & PV segment (CV & PV volumes for TTMT up 17.5% % 12% respectively for FY19) 2) EBIT margin target of 4-6% over FY20-22 and 5-7% in the long run (FY19 EBIT margins at 3.8%) 3) Higher FCF generation curtailing Subsidiary investments within affordable limits. While the domestic demand environment for the next 3-6 months is expected to remain muted, H2 should see some recovery on anticipated pre-buy ahead of BS VI implementation. JLR outlook remains muted both for volumes and profitability with cut in EBIT margin guidance over FY20-21E to 3-6% (earlier 4-6%) owing to continued demand challenges & model run-outs.

Outlook

Retain ''Accumulate'' with a target price of Rs192, where we value JLR at 1.5x Mar'21E EV/EBITDA and Standalone entity at 9x Mar'21E EPS.