We reiterate ‘overweight’ rating on Tata Motors and raise target price of R480 (earlier R445) as we roll forward SOTP valuation to FY16e. We value the JLR business at a 4x Ebitda (trailing 12 months to FY16e) with an unchanged multiple for the domestic business of 6x FY16e Ebitda. We see volume growing at a 14% CAGR for JLR in FY13-16e, led by a strong global luxury car market and market share gains. Margins to remain stable as well in FY15-16e.
Tata Motors offers defensive strength to investors in continued weak domestic conditions. While upside may be limited in the near term after a 30% rise in the past six months, the shares still appear the most resilient in India’s auto sector in the near term, with robust long-term growth potential. Consensus already factors in a moderation in Jaguar Land Rover (JLR) growth and margins in 2014, leaving little downside risk, in our view. We expect JLR to benefit not only from strong industry growth, but also from market share gains driven by an impressive product launch pipeline.
We expect the global premium market to grow 6% in 2014, post strong 8% growth in 2013. China and the US are now 45% of the global premium market. For 2014, we expect to see not only China and the US remain on a high growth track, but also a pick-up in Europe, where prices should begin to improve.
JLR could see competition rise in the smaller SUV segment in 2014 (Mercedes Benz GLA, Porsche Macan set for launch), but the segment is still expanding faster than the overall market. The real battleground, in our view, is in the 3m-plus luxury compact sedan segment.