Hold Tata Motors; target of Rs 92: Emkay Global Financial

Emkay Global Financial's report on Tata Motors

EBITDA margin was below estimates in JLR, with a contraction of 300bps yoy to 6.2% (est.:7.7%), due to lower realizations and adverse forex. Standalone margin also came in below estimates, with a contraction of 1,340bps to -7.4% (est.: -4%), due to lower gross margins. Near-term volumes are likely to be under pressure in JLR/standalone divisions, and a gradual recovery is expected in H2FY21 due to a low base, stimulus measures by governments to aid economic activity and new products. Management’s efforts continue on reducing operating costs and capex. We reduce consolidated EBITDA estimates for FY21E by 33% to Rs171bn, led by lower volume and margin assumptions, but retain FY22E EBITDA forecast at Rs379bn. Our FY22 earnings estimate increases by 8% to Rs52bn, owing to lower depreciation and reduction in China JV losses.

Outlook

TTMT is relatively more vulnerable than other OEMs, owing to high fixed costs and weak Net Debt/EBITDA situation (3.6x as of Mar’20). Retain Hold with a TP of Rs92 (Rs78 earlier), based on EV/EBITDA of 2x/8x on FY22 estimates for JLR/standalone divisions.

Tata Motors 17062020-emkay

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