Tata Motors shares rating: add with a revised target price of 375 (from 355 earlier)
Strong performance continues: JLR retail volumes grew by 28% year-on-year in August aided by 92% y-o-y growth in Jaguar volumes and 18% y-o-y growth in Land Rover volumes. The strong growth in sales was supported by a ramp-up in sales volumes of newly launched models. We downgrade the stock to Add (from Buy previously) with a revised target price of 375 (from 355 earlier) as we believe the stock is fairly valued post-sharp run-up in the stock price.
Impressive growth across all regions: The strong growth momentum in Jaguar and Land Rover in August was supported by a ramp-up in sales volumes of newly launched models: F-type sold 808 units in August 2013, Range Rover volumes increased by 47% y-o-y and New RR Sport sold 2,128 units. Evoque and Freelander volumes also increased 34% and 23% y-o-y, respectively. We highlight that strong growth in JLR volumes in August 2013 was characterised by a broad-based growth in all regions. China volumes were up 44% y-o-y while North America was up 39% y-o-y. Sales volumes in Europe suffered because of the run-down of old Range Rover Sport model.
Ebitda margin to improve: We expect JLR’s Ebitda margin trajectory to benefit from richer product mix and positive operating leverage, driven by (i) 15% y-o-y growth in volumes in FY2014 due to the ramp-up in volumes of new models and (ii) higher share of Range Rover, XF and F-type in the product mix. We believe FY2014 volumes could surprise positively, led by continued strong growth across regions.
Volume growth momentum to remain strong: JLR product pipeline remains robust with the company planning to launch eight new refreshes/models in FY14. We also expect JLR to augment its capacity to 470K units/annum and 590K units/annum by FY2014-15 on a two-shift basis versus 400K units/annum currently, which will likely support the strong demand for JLR products.