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Buy rating on Tata Motors on JLR push

We maintain our ?buy? rating on Tata Motors and raise the target price to R486 (earlier R421). We increase our FY15e and FY16e consolidated earnings by ~10 and 27%

We maintain our ?buy? rating on Tata Motors and raise the target price to R486 (earlier R421). We increase our FY15e and FY16e consolidated earnings by ~10 and 27%, respectively, as we explicitly forecast Chery JV?s numbers and hike domestic business ebitda. Our SOTP-based target price is JLR R405 (3.5x Q2FY16e ebitda), parent business R50 (1x Q2FY16e BVPS), subsidiaries R14, and Chery JV R55 (1x FY16e sales). Net debt/share is forecast at R38.

Jaguar Land Rover (JLR) is in a sweet spot of product life cycle. From being a niche premium-car player, JLR is now positioned to become the fourth global luxury-car maker (behind BMW, Audi and Mercedes Benz) with annual volume of ~5 lakh vehicles by FY16. A slew of new launches in the next 15-18 months should reduce J/LR?s average fleet age to 2-3 years ? slightly bettering its peers ? from ~5/3.5 years respectively.

Chery JV to help fully explore the China opportunity. China?s luxury-car market is expected to grow at ~15% over the next two years, and our forecast of ~1.6 lakh units in China for JLR by FY16 (including JV?s ~86,000 units) implies an ~8% market share. This provides JLR ample headroom for volume growth over the medium term.

An aging heavy-truck fleet (15% of fleet over 15 years) could drive replacement demand as emission norms change next year and aided by a slight recovery on the macro front. Tata Motors PV segment could benefit from new-model introductions in FY16. Yet cost-reduction initiatives are key to improving margins in FY16 (we forecast an ebitda margin of ~4% versus -0.9% in FY14).

Citi

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First published on: 12-04-2014 at 03:21 IST
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