ET NowIn a chat with ET Now, Raghunandhan NL, Auto Analyst, Quant Broking, gives his views on Tata Motors’ earnings. Excerpts:
ET Now: The EBITDA performance is rather spectacular 17.2 odd per cent, way above what our poll was suggesting. I am sure it is above what you are working with as well.
Raghunandhan NL: Yes, the EBITDA margin has certainly surprised on the positive side, and it is certainly better than anybody’s expectation on the street. Mainly, the other expenses to sales have gone down and the capitalised portion has gone up. These are the two reasons I can identify as to why the margins are better than expectations.
Apart from that, the raw material cost and employee cost was broadly in line with estimates.
ET Now: The key point is, what is the valuation that the company is quoting at? More importantly, how much does this profitability jump get reflected in the way the stock trades?
Raghunandhan NL: Of late, the stock has corrected. Post the correction, the stock has been trading at a valuation of four times EV-EBITDA and seven times price to earnings on FY16 basis. So, the valuations have been very attractive. Adding spectacular performance to attractive valuations, tomorrow there should be a big upside on the stock.
The only thing which could be a dampener is a possible negative commentary by the management on what is happening in China, and how it might impact the realisations and margins.
ET Now: 42 million pounds of PBT; we were anticipating a PAT of 465. Even if you add the tax that they could have paid at the highest rate, I am sure they have done exceptionally well on their EBITDA and PAT front on JLR. So, that is where the big beat has come in. But not to forget that I saw a flash which said that on the standalone basis, they have done a PAT versus loss this time around as well. It is largely a JLR story, I agree with you on that. But just the standalone performance that they have given this time around, is heartening as well. Or you would not quite look into it?
Raghunandhan NL: If you look at the standalone performance, there is other income of close to 15 to 16 hundred crore. It reflects the dividend from JLR. So, if you strip that off, then you would be left with loses.
ET Now: So the standalone operations have not really come about, but the bigger story is probably the 17.2% EBITDA margin that they have clocked? How likely is it that this can be sustained?
Raghunandhan NL: I feel that sustaining these levels of margins is extremely difficult because of one reason. If you look at over the next two years, the company’s biggest growth trigger would be the mini Jaguar or the Jaguar XE, which is going to be launched. This product is likely to have lower realisations and lower margins. So, that could have a negative impact on margins going ahead.
Apart from that, our calculation suggests at least a 1% hit on realisations going forward, because of the price cuts taken in China.
ET Now: The EBITDA performance is rather spectacular 17.2 odd per cent, way above what our poll was suggesting. I am sure it is above what you are working with as well.
Raghunandhan NL: Yes, the EBITDA margin has certainly surprised on the positive side, and it is certainly better than anybody’s expectation on the street. Mainly, the other expenses to sales have gone down and the capitalised portion has gone up. These are the two reasons I can identify as to why the margins are better than expectations.
Apart from that, the raw material cost and employee cost was broadly in line with estimates.
ET Now: The key point is, what is the valuation that the company is quoting at? More importantly, how much does this profitability jump get reflected in the way the stock trades?
Raghunandhan NL: Of late, the stock has corrected. Post the correction, the stock has been trading at a valuation of four times EV-EBITDA and seven times price to earnings on FY16 basis. So, the valuations have been very attractive. Adding spectacular performance to attractive valuations, tomorrow there should be a big upside on the stock.
The only thing which could be a dampener is a possible negative commentary by the management on what is happening in China, and how it might impact the realisations and margins.
ET Now: 42 million pounds of PBT; we were anticipating a PAT of 465. Even if you add the tax that they could have paid at the highest rate, I am sure they have done exceptionally well on their EBITDA and PAT front on JLR. So, that is where the big beat has come in. But not to forget that I saw a flash which said that on the standalone basis, they have done a PAT versus loss this time around as well. It is largely a JLR story, I agree with you on that. But just the standalone performance that they have given this time around, is heartening as well. Or you would not quite look into it?
Raghunandhan NL: If you look at the standalone performance, there is other income of close to 15 to 16 hundred crore. It reflects the dividend from JLR. So, if you strip that off, then you would be left with loses.
ET Now: So the standalone operations have not really come about, but the bigger story is probably the 17.2% EBITDA margin that they have clocked? How likely is it that this can be sustained?
Raghunandhan NL: I feel that sustaining these levels of margins is extremely difficult because of one reason. If you look at over the next two years, the company’s biggest growth trigger would be the mini Jaguar or the Jaguar XE, which is going to be launched. This product is likely to have lower realisations and lower margins. So, that could have a negative impact on margins going ahead.
Apart from that, our calculation suggests at least a 1% hit on realisations going forward, because of the price cuts taken in China.
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