We maintain our 'add' rating on Tata Motors with an unchanged target price of Rs 450 noting inexpensive valuations in view of the strong volume growth potential of JLR.
We remain constructive on the stock noting strong volume growth of JLR due to 1) robust ramp-up of new models and (2) augmentation of manufacturing capacity to 470,000 units per annum and 600,000 units per annum by FY2014/15 respectively on a two-shift basis versus 400,000 units per annum now.
However, we expect ebitda margin to come under pressure in the next few quarters due to (1) deterioration in product mix post the strong initial demand for Range Rover Sport, (2) adverse currency movements and (3) increase in publicity and marketing spends with the launch of small Jaguar.
Jaguar reported a 15.3% y-o-y growth in volumes while Land Rover reported a 13.1% y-o-y growth in volumes in February 2014 led by strong ramp-up of XF and New Range Rover Sport Ч XF sales volumes were at 3,469 units (+17.2% y-o-y) while New Range Rover Sport sales volumes were at 6,014 units (+65% y-o-y).
Freelander and Evoque volumes increased by 11.5% and 3.9% y-o-y, respectively. We expect the sales volume growth of new models to remain strong in FY15e.
Kotak Institutional Equities