Maintain 'overweight' on Tata Motors shares, target price Rs 445: HSBC

Nov 28 2013, 12:24 IST
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Reuters Reuters
SummaryJaguar is emerging as a credible alternative to the top-three German names

We reiterate 'overweight' on Tata Motors shares, with target price raised to Rs 445 (from Rs 358).

Our takeaways from recent interaction with European Jaguar dealers indicates brand perception and brand acceptance are improving. Even among European drivers, Jaguar is emerging as a credible alternative to the top-three German names.

This bodes well for the brand’s outlook, in particular the success of the smaller Jaguar model due for launch next year could keep volume growth and sentiment buoyant in FY15-16e. As for Land Rover, volume growth estimates for FY15-16e look achievable, supported by the new Freelander and the full year impact of RR Sports. We expect Jaguar Land Rover volumes to grow at a 14% CAGR in FY13-16e, with JLR’s share of the luxury market expanding to 6.3% in FY16e from 4.8% in FY13.

Jaguar Land Rover’s margins are currently lower than BMW’s. This is despite JLR’s much higher product margin score. The lower profitability at Jaguar Land Rover could be partially attributed to BMW’s scale economies.

Although Jaguar has lower margins than Land Rover, an increasing Jaguar contribution to sales may not necessarily dilute Jaguar Land Rover margins, as Jaguar’s high operating leverage indicates its profitability should improve with sales. On the back of a stable margin, we estimate Ebitda to grow at a 15% CAGR in FY14-16e.


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