Hold Tata Motors; target of Rs 87: Prabhudas Lilladher

Prabhudas Lilladher's research report on Tata Motors

TTMT 4QFY20 performance was operationally weak with S/A margins at -4.4% (PLe -3.3%), JLR margins at 4.8% (PLe 7%) and consol margins at 3.8% (PLe 6%). The miss in JLR margin was led by negative operating leverage and weak performance at China JLR with an EBITDA loss of GBP16mn (v/s loss of GBP1mn in 3QFY20). With China stabilizing post COVID (May retails at +4.2% YoY) and improvement in other global markets, JLR to see gradual volume recovery. Consistent delivery in cost savings (Project charge savings of GBP3.5bn till date and target of GBP5bn by 4QFY21) and rationalized capex (-60% in S/A at Rs15bn and -40% at JLR at GBP2.5bn) should help cash flows in challenging times. We cut FY21/22 consol EPS by 16%/9% to factor in for weak margins.

Outlook

We maintain Hold with the revised SoTP based target price of Rs87 (from Rs84), where we value JLR at 4x EV/EBITDA and Standalone entity at 8x EV/EBITDA (unchanged).

Tata Motors 17062020-prabhu