JLR reported Ebitda growth of 68% year-on-year in Q1FY15, which was 24% above our estimates led by lower other expenses. The company indicated that other expenses were lower by GBP 100m excluding forex gains on a quarter-on-quarter basis due to lower marketing costs because of a superior product mix. We maintain our Buy rating on the stock as we believe volume growth of JLR will continue to surprise the street led by new model launches. We have raised our target price to R590 (from R575) as we have increased our JLR Ebitda (earnings before interest, taxes, depreciation and amortisation) margin assumptions.
JLR surprises on publicity expenses: JLR reported net profit of GBP693m (+128% y-o-y) that was 53% above our estimates. JLR reported 68% y-o-y growth in Ebitda in Q1 driven by 31% y-o-y increase in revenues and 450 bps y-o-y expansion in Ebitda margin. The key surprise was lower-than-expected other expenses, which declined sharply q-o-q led by lower publicity expenses despite a 5% q-o-q fall in volumes. JLR said this was due to superior product mix, which lowered marketing costs.
Other expenses included GBP 98m forex gain on hedges in Q1FY15 vs GBP80m gain in Q4. Adjusted Ebitda was up 253 bps q-o-q, which largely came from GBP100m q-o-q decline in other expenses like publicity, etc.
Standalone business under pressure: Standalone business reported an adjusted profit before tax loss of R11,302m in Q1, higher than our estimate of R10,241m, led by a 15.4% y-o-y fall in net sales. Ebitda margin in standalone business at -3.9% declined by 510 bps y-o-y as passenger vehicle losses increased. We expect standalone Ebitda margin to improve over coming quarters due to lower discounting for commercial vehicles and pick-up in volumes of passenger vehicles led by the Zest launch.
Street underestimating JLR model launch potential: We maintain our Buy rating on the stock as we continue to expect positive surprises on JLR volume growth. We expect new launches to improve JLR volume growth. Jaguar XE and Jaguar SUV will be the key launches over the next two years. We have increased our consolidated earnings estimates by 5-11% over FY15/16e. We have thus increased our target price to R590 (from R575) based on sum-of-the-parts valuation methodology.
JLR reports sharp jump in profitability: JLR reported a net profit of GBP693m. It reported a GBP70m gain due to translation impact on foreign-denominated