Hold Tata Motors; target of Rs 351: Edelweiss

Edelweiss' research report on Tata Motors

We attended the India business investor day organised by Tata Motors (TML) on June 5. Key takeaways are: 1) demand outlook–Commercial vehicles (CV) in an upcycle; management estimates 10-12% volume CAGR over FY18-20; outlook on passenger vehicles’ (PV) demand is good as well 2) 3-5% FY19-21 EBIT margin guidance; 5-7% beyond FY21; 3) targeting competitive, consistent & cash accretive growth; this addresses investors’ apprehension on price war in CV; 4) change in culture & approach towards customers, dealers & supplier engagements; 5) focusing on modularity to provide flexibility, customisation & reduce costs; and 6) tier 3 & 4 towns as well as rural areas on the radar. Management pegged capex at ~INR40bn p.a. primarily for product development. We maintain our earnings estimates and ‘HOLD’ rating. We will review the same post JLR’s investor day, which is scheduled on June 22.

Outlook
We believe, the India business is well placed to capitalise on demand uptick with a potential of positive surprise to our FY20E EBIDTA of ~INR60bn. However, turnaround in JLR’s free cash flow profile remains key trigger. We maintain ‘HOLD’ and SOTP-based TP of INR351. For all recommendations report, click here

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