February 27, 2017 / 10:29 IST
JLR’s EBITDA was a 20% miss. Margin was 10% vs. estimate of 14%. While some cost pressures were higher than expected (Discovery run-down), the heartbreak stemmed from the unfavorable hedge book in the wake of positive currency (GBP depreciation vs. the USD). To recap, JLR hedges 80/60/40/30/15% of its 1/2/3/4/5 year forward revenue.
Outlook
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Besides the positive model cycle, our optimism stemmed from positive currency as well. If heavy hedging losses could continue for another few quarters, we’d prefer remaining on the sidelines till the hedge rates get favorable. For now, we have lowered FY18 EBITDA estimates by 12% and downgraded the stock to HOLD with revised TP Rs 500.
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