Buy Tata Motors; target of Rs 430: ICICI Direct

ICICI Direct's research report on Tata Motors

Tata Motors’ (TML) Q4FY18 consolidated revenues were at Rs 91279 crore (up 18.2% YoY, 23.1% QoQ), vs. our estimate of Rs 76654 crore. The beat on consolidated revenue is mainly after JLR revenues came in at £7.6 bn vs. estimate of £6.0 bn. JLR wholesale volumes were at 182757 units (up 4.4% YoY) against our estimate of 155,005 units Consolidated EBITDA margins were at 13.1% (our estimate: 11.1%) down 226 bps YoY, up 30 bps QoQ. Reported EBITDA margin of JLR for Q4FY18 was at 12.2%, above our estimate of 12.6%. However, reported EBITDA margins were lower than consensus estimates on account of one-time provision related to impairment of intangibles Reported consolidated PAT was at Rs 2175 crore (our estimate: Rs 1494.5 crore) against Rs 4336.4 crore in Q4FY17 & Rs 1214.6 crore in Q3FY18. Tata Motors has reviewed its assets based on future profitability that has led to a provision of Rs 2110 crore, thus depressing consolidated profits China JV profits grew ~93% YoY to £89 mn In standalone operations, net revenues came in at Rs 19,779 crore (up 45.6% YoY) as total automotive volumes (CV & PV) were up 35% YoY. Reported EBITDA margin came in at 6.9% (up 91 bps YoY, down 185 bps QoQ) against our estimate of 4.4% JLR declared a dividend of £225 mn (20% of PAT) for FY18, which will be 25%, going forward In terms of region, China & Indian markets continue to do well while UK, US & European markets face growth challenges on account of diesel uncertainty, market cyclicality, Brexit & UK taxation.

Outlook

We value the stock on an SOTP basis, with JLR (ex-China JV) at 2.8x EV/EBITDA basis contributing ~Rs 278/share while the domestic business contributes Rs 86/share. Inclusive of other subsidiaries, we arrive at a target price of Rs 430.