Tata Motors Q1FY09 RU

8/8/2019 Tata Motors Q1FY09 RU

1/10

KRC Research is also available on Bloomberg KRCS, Thomson First Call, Reuters, Factset and Capital IQ

Price Outlook (INR): 634

Market Data 1st August, 2008

Shares outs (Cr) 38.56

Equity Cap (Rs. Cr) 385.6

Mkt Cap (Rs. Cr) 15,370

52 Wk H/L (Rs) 841 / 373

Avg Vol (1yr avg) 2,42,606

Face Value (Rs) 10

Bloomberg Code TTMT IN

Market Info:SENSEX : 14,656NIFTY : 4,413

Price Performance

60

80

100

120

140

A u g - 0

7

S e p - 0

7

O c t - 0 7

N o v - 0

7

D e c - 0

7

J a n - 0

8

F e b - 0

8

M a r - 0 8

A p r - 0 8

M a y - 0

8

J u n - 0

8

J u l - 0 8

A u g - 0

8

Ta ta Mot or s Se ns ex Share Holding pattern (%)

Particulars Jun-08 Mar-08 Chg

Foreign 22.0 24.1 -2.1

Institutions 17.6 17.5 0.1Promoter 33.4 33.4 0

Public 12.5 11.4 1.1

Others 14.5 13.6 0.9

Total 100 100

AnalystGaurav [email protected] 91-22-6696 5203

Anup [email protected] 91-22-6696 5570

www.krchoksey.com 91-22-6696 5555

91-22-6691 9569

India Equity Research I Automobiles Result Update (Large Cap)

Margin pressure persists! BUY

Tata Motors Ltd. INR: 395

We have analysed the results of Q1FY09 results Tata Motors Ltd. & our

key findings are:

Q1FY09 Results Key highlights Strong Realization pushes the revenue- Net sales grew by

14.4% y-o-y to Rs 6928.4 crore against Rs 6056.8 crore inQ1FY08. The sales growth was on the back of 3.65% y-o-ygrowth in volumes and strong growth in the realizations of 10%y-o-y.

Operating margins declined 116 bps- The EBITDA (excludingother income) margins declined by 116 bps to 7.54% against anEBITDA margin of 8.7% in Q1FY08. The margins declined dueto strong rise in the raw material costs. The raw material costsstood at 72.01% of sales in the quarter against 69.68% inQ1FY08, showing a rise of 233 bps. The EBITDA for the quarter showed a sluggish growth of 2.1% y-o-y despite strong toplinenumbers. The EBITDA for the quarter was at Rs 838 croresagainst Rs 821 crore in Q1FY08.

Forex losses impacted PAT- The Company also showed aloss of ~200 crore on account of Forex derivatives & other Forex liabilities as per the requirements of AS 30. The PAT for the quarter, therefore declined by ~30% to Rs 326.11 croreagainst Rs 466.76 crore in Q1FY08. The EPS for the quarter stood at Rs 8.46. However, if we adjust the PAT numbers for the extraordinary notional losses on account of Forextransactions, the PAT for the quarter comes to Rs 526 croreand the EPS would be at Rs 13.64.

Financial Performance

Q1FY09 Q1FY08 y-o-y(%) Q4FY08q-o-q

(%)

Net Sales 6,928.4 6,056.8 14.4% 8,749.5 -20.8%

EBITDA 522.5 527.0 -0.8% 920.0 -43.2%

Net Profit 326.1 466.8 -30.1% 536.3 -39.2%

EPS 8.5 12.1 -30.2% 13.9 -39.2%

OPM (%) 7.5% 8.7% 10.5%

NPM (%) 4.7% 7.7% 6.1% Source: Company data, KRC Research

Valuations:

At the CMP of Rs 395 the stock trades at 6.8x its FY09E EPS of Rs57.47. We believe that the stock has had a strong sell-off in the recentmonths which has taken care of any negative news in the company. Werecommend a BUY on the stock with a target of Rs 634 arrived throughthe SOTP process. At the target price the company would be trading at11x its FY09E EPS of Rs 57.47 representing an upside potential of 60%from current levels. These calculations, however, do not take intoaccount the recent JLR acquisition which we believe would be stronglyEPS accretive, as we are awaiting the numbers for JLR to be disclosedby Tata Motors to evaluate it.


2/10

Tata Motors Ltd.

2 KRC Equity Research

Sales Performance

Source: Company data, KRC Research

Strong Realization pushes the revenue:

Net sales grew by 14.4% y-o-y to Rs 6928.4 crore against Rs 6056.8 crore in Q1FY08.

The sales growth was on the back of 3.65% y-o-y growth in volumes and strong growth

in the realizations of 10% y-o-y. The improvement in realization was on the back of

increase in the vehicle price and favorable product mix. During the quarter Company

sold 24% stake in its associate Tata Auto Comp Systems Ltd. Profit of Rs. 113.66

crores on the sale is included in other income.

The domestic volume growth was aided by 15.9% growth in commercial vehicles

segment, driven largely by success of ACE Magic and Winger, 81% growth in EntryMid-size Passenger car segment, due to strong customer response to the Indigo CS

and 23% growth in UV segment on the back of successful launch of Sumo Grande.

The company has experienced no growth in overall passenger vehicle. The export

volumes of the Company registered a decline of 33.6% during quarter, due to market

contraction in most of the prime export markets.

Commercial Vehicle growth led by LCV growth

CV domestic sales volumes increased by 15.9% y-o-y; 71,409 units in the quarter as

compared to 61,633 units in Q1FY08. The LCV segment posted robust growth of 27.6%

y-o-y, on the other hand MHCV market recorded moderate growth of 7.2 % y-o-y during

the quarter. Tata Motors experienced growth of ~16% in the quarter in Commercial

vehicle segment largely driven by success of ACE Magic and Winger. The Industry

registered a volume growth of 16.2%, MHCV grew at 9.1% and LCV clocked a robust

27.6% growth. MCV truck market which declined substantially last year, rebounded

strongly with 12.4% growth in the current quarter.

Sales of vehicles for the quarter Q1FY09 was 18,425 units with domestic volume at 17,145 units and international operations contributing 1280 units

Net sales grew by 14.4% y-o-y to Rs 6928.4 crore against Rs 6056.8 crore in Q1FY08.

The improvement in realization was on the back of increase in the vehicle price and favorable product mix.

6163371409

52573 52450

138899220

128095133079

0

20000

40000

60000

80000

100000

120000

140000

Commercial vehicles Passenger Vehicles Exports Total Sales

Q1 Sales Performance

Q1FY08 Q1FY09

16%

-0.2%

-33.6%

3.9%


3/10

Tata Motors Ltd.



CV Segment Marke t Share

58.60%

60.10%

61.70%

65.40%

61.50%

62.90%

56.00%

58.00%

60.00%

62.00%

64.00%

66.00%

LCV MHCV Overall

Q1FY08 Q1FY09


Tata Motors market share in MHCV has increased to 60.1% from 58.6% due to growth

in both truck and bus segment. Tata Motors market share in LCV passenger segment

increased to 69.8% during the quarter from 46.2% in the corresponding quarter of last

year implying a growth of 23.6%.

The companys market share in the LCV segment declined from 65.4% in Q1FY08

(April- June 07) to 62.9% in Q1FY09 (April-June08), on account of disruption in

production of ACE caused due to shifting of production from Pune to Uttarakhand.

However, LCV volume of Tata Motors increased by 22.7% in Q1FY09 against during

the same period last year.

Tata Motors experienced growth of ~16% in the quarter in Commercial vehicle segment largely driven by success of ACE Magic and Winger.

LCV volume of Tata Motors

increased by 22.7% in

Q1FY09 against during the

same period last year.

LCVs boosted CV sales

32592 35788

2904135621

0

10000

20000

30000

40000

50000

6000070000

80000

Q1FY08 Q1FY09

MHCV LCV

9.8%

22.7%

Overall grow th of 15.9%

61633

71409


4/10

Tata Motors Ltd.


UV & Sedan launches keep the Passenger car segment afloat


Strong market response to Indigo CS launched in Q4FY08 increased Tata Motors

market share in entry mid-size segment from 33.6% to 38.6% y-o-y. Sumo family sales

grew 34.4%, driven by success of Sumo Grande, strengthening TMLs market share in

UV segment. Passenger vehicle industry registered growth of 13.2 %, primarily driven

by new product launches and introduction of variants. Aging small car portfolio and

intense competition, continues to affect TMLs market share decline in small car

segment. Fiat vehicle sales increased 85.4% y-o-y to 1,359 units during the quarter.The company launched the Indica V2 Xeta LPG, a dual fuel (petrol and LPG) car and

Indigo CS DICOR during the quarter.

Strong market response to Indigo CS launched in Q4FY08 increased Tata Motors market share in entry mid-size segment

from 33.6% to 38.6% y-o-y.

UV & Mid Size segm ent ste m the fall

3459825673

10040

12365

720213053

0

10000

20000

30000

40000

50000

60000

Q1FY08 Q1FY09

Small Car (A2) Utility Vehicles Mid Size (A3)

Overall 1.4%

25.8%

23.2%

81.2%


5/10

Tata Motors Ltd.


Passe nger Car Marke t Share

14.90%16.40%

33.30%

19%

38.60%

12.90%

19.10%

10.80%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Utility Vehicles Mid Size ( Indigo) Small Car ( Indica) Overall

Q1FY08 Q1FY09

Declining Small car marketsharepulls the over all marketshare down


Tata Motors market share in the fast growing entry-mid size car segment grew from

33.3% in Q1FY08 to 38.6% in Q1FY09, due to strong market response to the Worlds

first compact sedan Indigo CS launched in Q4FY08. The Company also launched

Indigo CS DICOR during the quarter to leverage ongoing success of Indigo CS. In the

Utility Vehicle segment, Tata Motors strengthened its market share from 19.0% in

Q1FY08 to 19.1% in Q1FY09, driven by the success of Sumo Grande launched in

February 2008. Sumo family registered a volume growth of 34.4% in the current

quarter, while Safari sales grew 7.9%. In the Small car segment, Tata Motors market

share declined from 16.4% in Q1FY08 to 10.8% in Q1FY09, owing to its aging small

car portfolio and intense competition. With the launch new Indica, the company

expects to regain its lost market share.

Prime export markets contraction lead to decline in volume


96597747

4230

1473

13889

9220

0

2000

4000

6000

8000

10000

12000

14000

Commercial Vehicles Passenger Vehicles Total

Export Volumes

Q1FY08 Q1FY09

19.8%

65.2%

33.6%

Slowing demand & agingproducts pulled theexports down


6/10

Tata Motors Ltd.


The Companys export volumes declined 33.6% y-o-y during Q1FY09. Exports volume

declined by 33.6% during the quarter, due to decline in prime markets which witnessed

adverse impact on automotive demand due to high interest rates, high fuel prices andaging vehicle offering. Sales declined 65.2% in the passenger vehicles which saw

declining sales in markets such as South Africa, parts of Western Europe and Africa.

Amidst decline in passenger vehicles volume, SUMO family volumes continued its

uptrend. Commercial vehicles saw a 19.8% decline in volumes due to lower sales in its

prime markets like South Africa and Sri Lanka.

Rising input cost take its toll on margins

The EBITDA for the quarter showed a sluggish growth of 2.1% y-o-y despite strong

topline numbers. The EBITDA for the quarter was at Rs 838 crores against Rs 821

crore in Q1FY08. The EBITDA (excluding other income) margins declined by 116 bps to

7.54% against an EBITDA margin of 8.7% in Q1FY08. The margins declined due to

strong rise in the raw material costs. In a rising cost scenario, pressure on margins was

visible as the companys raw material cost stood at 72.01% of sales in the quarter

against 69.68% in Q1FY08, showing a rise of 233 bps. The company however,

managed to absorb costs to the tune of 29.4 crore due to various cost reduction

measures.

Forex losses impacted PAT

Net interest expense increased 37.7% y-o-y to Rs.1123.3 mn in Q1 FY09, compared to

Rs.815.6 mn due to rising interest rates and higher debt. However, the interest expense

as a % of net sales increased marginally from 1.3% in Q1 FY08 to 1.6% in Q1 FY09.

Tax rate for first quarter declined substantially and stood at 5.5% as compared to 21.2%for same period last year, on account of large dividends received by Company on its

Investments/Subsidiaries which are not taxable in the hands of the Company and

weighted deductions available on R&D expenditure. The Company also showed a loss

of ~200 crore on account of Forex derivatives & other Forex liabilities as per the

requirements of AS 30. The PAT for the quarter, therefore declined by ~30% to Rs

326.11 crore against Rs 466.76 crore in Q1FY08. The EPS for the quarter stood at Rs

8.46. However, if we adjust the PAT numbers for the extraordinary notional losses on

account of Forex transactions, the PAT for the quarter comes to Rs 526 crore and theEPS would be at Rs 13.64.

JLR shows sluggish growth

Under challenging conditions, Land Rover wholesale sales decreased by 15.1% from

62,141 units during the period Apr to June07 to 52,728 units for the period Apr to

June08 ; while Jaguar sales increased by 48.9% from 15,074 units to 22,444 units

If we adjust the PAT numbers for the extraordinary notional losses on account of Forex transactions, the PAT for the quarter comes to Rs 526 crore and the EPS would be at Rs 13.64.


7/10

Tata Motors Ltd.


during the corresponding periods. For the six month period Jan-June08, total Jaguar

Land Rover retail sales saw a growth of 3% y-o-y with Land Rover retail sales

witnessing a marginal growth of 0.6% at 109,545 units and Jaguar retails was up

11.2% at 35,704 units from corresponding period of previous year. Jaguar XF

launched in March 2008, received strong response with sales of more than 13,700

units during Apr-June08.

Tata Motors has however, not given out any financial number for the JLR subsidiary

as they would be coming out with the compiled numbers in few months and hence we

have also not considered it in our valuations. However, the management has

indicated that it has acquired JLR as a Debt-free company and JLR is expected to

have tax benefits due to earlier accumulated losses.

Other Highlights of Q1FY09

Launched the Indica V2 Xeta LPG, a dual fuel (petrol and LPG) car which

reduces CO2 emissions by about 10%, while delivering excellent fuel efficiency

both in the city and on highways. Also, to leverage ongoing success of Indigo

CS, Indigo CS DICOR was launched.

On 28th May 2008, Tata Motors Board, inter alias, decided to raise an amount of about Rs.7,200 crores through three simultaneous but unlinked Rights Issues

of the following securities:- A Rights Issue of Equity Shares upto Rs.2,200 crores; A Rights Issue of A Equity Shares carrying differential voting

rights (1 vote for every 10 A Equity Shares) upto Rs.2,000 crores; A Rights Issue of 5-year 0.5% Convertible Preference Shares

(CCPs) upto Rs.3000 crores, optionally convertible into A Equity

Shares after 3 years but before 5 years from the date of allotment.

Additionally company plans to raise USD 500-600 million through an appropriate

issue of securities in the foreign markets on terms to be decided at that time.

On 2nd June 2008, Tata Motors acquired the Jaguar Land Rover businesses

from Ford Motor Company for a net consideration of US $2.3 billion in an all-cash

transaction. Ford has contributed about US $600 million to the Jaguar Land

Rover pension plans.The financial statements of the acquired business are under compilation. In view

of this, consolidated results are not yet available and hence are not being

published.

Tata Motors Board decided to raise an amount of about Rs.7,200 crore through three simultaneous but unlinked Rights Issues


8/10

Tata Motors Ltd.


Going Forward

The Company plans to address the challenging environment through launch of new

product / variants such as:

Commercial Vehicles : World Truck, MHCV truck variants, Marcopolo buses, Ace

1 ton.

Passenger Vehicles: New Indica / Indigo, Nano, Xenon, Fiat 500, Linea, Punto

It has also highlighted its aggressive cost reduction initiatives, Network expansion,

improving efficiency through better logistics/distribution, and unlocking value from

current investments.

Financial Performance

Relative Valuation

Particulars Q1FY09 Q1FY08y-o-y(%) Q4FY08

q-o-q(%) FY09E

Net sales 6,928.4 6,056.8 14.4% 8,749.5 -20.8% 33,355.0TotalExpenditure 6,405.9 5,529.8 15.8% 7,829.5 -18.2% 29,994.0EBITDA (excl.OI) 522.5 527.0 -0.8% 920.0 -43.2% 3,360.9Depreciation 180.8 147.5 22.6% 177.6 1.8% 761.4Other Income 315.6 294.2 7.3% -93.0 -439.3% 551.9PBT 545.0 592.1 -8.0% 698.0 -21.9% 2,798.1Tax 19.0 125.4 -84.9% 161.8 -88.3% 582.3PAT 326.1 466.8 -30.1% 536.3 -39.2% 2,016.0EPS 8.5 12.1 -30.2% 13.9 -39.2% 52.3OPM (%) 7.5% 8.7% 10.5% 10.1%

NPM (%) 4.7% 7.7% 6.1% 6.0%

Particulars Ashok Leyland M&M Maruti SuzukiTata

Motors

CMP (Rs) 28.2 522.9 562.2 395.3

Net Sales (Rs Cr) 7,991.8 12,184.2 18,759.0 29,602.4

Mcap (Rs Cr) 3,744.8 12,848.5 16,241.6 15,243.2

PE (x) 8.5 13.9 9.6 7.5

EV/Sales (x) 0.5 1.2 0.8 0.6

EV/EBITDA (x) 5.1 8.8 4.9 5.9

Mcap/Sales (x) 0.5 1.1 0.9 0.5

OPM (%) 10.2% 13.6% 16.7% 11.0%

NPM (%) 5.5% 7.6% 9.0% 6.9%


9/10

Tata Motors Ltd.


Valuations

At the CMP of Rs 395 the stock trades at 6.8x its FY09E EPS of Rs 57.47. We

believe that the stock has had a strong sell-off in the recent months which has taken

care of any negative news in the company. We recommend a BUY on the stock with

a target of Rs 634 arrived through the SOTP process. At the target price the company

would be trading at 11x its FY09E EPS of Rs 57.47 representing an upside potential

of 60% from current levels. These calculations however do not take into account the

recent JLR acquisition which we believe would be strongly EPS accretive as we are

awaiting the numbers for JLR to be disclosed by Tata Motors to evaluate it.


10/10

Tata Motors Ltd.


Rajiv Choksey Co-Head Institutional Equities [email protected] +91-22-6653 5135

Anuj Choksey Co-Head Institutional Equities [email protected] +91-22-6696 5500

Alok Agarwal Head Research [email protected] +91-22-6696 5502

Tata Motors Ltd.

Other Stocks in the sector under our active coverage: Automobiles

Date Company Type of Report Recommendation Price TargetPrice

31 July 2008 Ashok Leyland Result Update Buy 28 35.6

22 July 2008 Maruti Suzuki Result Update Buy 588 765

11 July 2008 Bajaj Auto Result Update Buy 498 623

22 May 2008 Bharat Forge Result Update Hold 294 326

________________________________________________________________________________________________________

Disclaimer:

This publication has been prepared solely for information purpose and does not constitute a solicitation to any personto buy or sell a security. While the information contained therein has been obtained from sources believed to bereliable, investors are advised to satisfy themselves before making any investments. Kisan Ratilal Choksey Shares &Sec Pvt Ltd., does not bear any responsibility for the authentication of the information contained in the reports andconsequently, is not liable for any decisions taken based on the same. Further, KRC Research Reports only provideinformation updates and analysis. All opinion for buying and selling are available to investors when they are registeredclients of KRC Investment Advisory Services. As per SEBI requirements it is stated that, Kisan Ratilal Choksey Shares& Sec Pvt Ltd., and/or individuals thereof may have positions in securities referred herein and may make purchases or sale thereof while this report is in circulation.

__________________________________________________________________________________________________________

Please send your feedback to [email protected]

Visit us at www.krchoksey.com

Kisan Ratilal Choksey Shares and Securities Pvt. Ltd.

Registered Office:1102, Stock Exchange Tower, Dalal Street, Fort, Mumbai 400 001.

Phone: 91-22-6633 5000; Fax: 91-22-6633 8060.

Branch Office:ABHISHEK, 5th Floor, Link Road, Dalia Industrial Estate, Andheri (W), Mumbai 400 058.

Phone: 91-22-6696 5555; Fax: 91-22-6691 9576.

Rating In next 12 months, expected to :

Buy Appreciate over 15%

Accumulate/Hold Appreciate upto 15%

Reduce Depreciate upto 10%

Sell Depreciate over 10%

350.00

450.00

550.00

650.00

750.00

850.00

950.00

Aug-

07

Sep-

07

Oct-

07

Oct-

07

Nov-

07

Dec-

07

Jan-

08

Feb-

08

Mar-

08

Apr-

08

May-

08

Jun-

08

Jul-

08

BUYBUY

Tata Motors Q1FY09 RU

Documents

Transcript of Tata Motors Q1FY09 RU