Edelweiss' research report on Tata Motors
Tata Motors’ (TTMT) Q1FY18 consolidated EBITDA of ~INR50bn (down ~45% YoY) came 26% below our estimate. JLR’s EBITDA margin nosedived to 7.9% (down ~600bps YoY) on higher commodity/marketing costs and adverse regional mix. We had evinced our concern on margins due to aging portfolio (refer our note – Race of Unequals). However, we expect JLR’s margin trajectory to improve over next 2 quarters on improving mix and waning impact of adverse hedge book from Q4FY18. An aging model portfolio (revenue weighted basis) and weak demand environment in key markets would nevertheless restrict sharp margin expansion. Factoring in the above and revised currency, we lower our FY18/19E EPS by 20%/10% to INR33/44.7. Maintain ‘HOLD’.
Outlook
While JLR’s product pipeline remains robust, we believe EBIT growth will trail Street’s expectation, thereby affecting estimated free cash flow. We believe M&HCV market share gains will remain challenging. We maintain ‘HOLD/SU’ with TP of INR444 (JLR valued at 5.5x FY19E EBIT and standalone at 8x FY19E EV/EBITDA). At CMP, the stock trades at 9.5x FY19E EPS.For all recommendations report, click here
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