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IndiaEquityResearch
Automobiles
February23,2012
A D D TataMotorsTargetPrice(INR) 303 RobustgrowthinJLRdrivenbyemergingmarkets
INITIATINGCOVERAGE JLR is likelyto steer TTMTs business, with its increasing contribution
to consolidated total income and EBITDA over FY12fFY14f. We
estimate JLRs sales volumes to grow at a CAGR of 15% over FY12f
FY14f on the back of launches and robust growth in developing
countries. In the standalone business, we estimate domestic LCVs to
growataCAGRof20%overFY12fFY14f,ledbyrobustgrowthincargo
SCVs.WeestimatearecoveryindomesticMHCVsalesvolumegrowth
to 10% by FY13f on account of a pick up in investments due to the
likely reversal in the interest rate cycle. We have valued the
standalonebusinessbasedonthemeanvaluationsofthepreviousCV
cycle,
while
we
have
valued
JLR
at
mean
valuations
of
Audi
AG.
Our
Mar13TPstandsatINR303(upsideof13%).InitiatewithanAddrating.
Highercommodityandfuelpricesaretheriskfactors.
Growthindevelopingcountries,launchesextendgoodtimesforJLR
Jaguar Land Rover (JLR) is witnessing robust sales volume growth due to the
growingacceptanceof itsvehicles indevelopingcountriessuchChina,Russia,
BrazilandIndia.Inaddition,successofproductssuchasEvoqueislikelytoaid
salesvolumegrowthforthecompany.WeestimateJLRssalesvolumestogrow
ataCAGRof15%overFY12fFY14f.
CargoSCVscontinuetodriveCVsalesvolumegrowth
WeestimatedomesticLCVstogrowataCAGRof20%overFY12fFY14f,ledby
robustgrowth
in
cargo
SCVs
(CAGR
of
22%).
Robust
demand
for
cargo
SCVs
is
ledbygrowth in lastmiletransportationandashift inpreference fromcargo
threewheelers toSCVs.Thissegmentcontributed76%ofdomesticLCVsales
volumes in FY11; we estimate this contribution to rise to 79% by FY14f. We
estimatedomesticMHCVsalesvolumegrowthtorecoverto10%byFY13fafter
moderation to singledigit growth in FY12f, on account of a pick up in
investmentactivityduetothelikelyreversalintheinterestratecycle.
ForecastthreeyearCAGRof16%intotalincomeduetoJLR
WeestimateconsolidatedtotalincometogrowataCAGRof16%overFY12f
FY14f, mainly led by JLRs increasing contribution. JLRs contribution to total
income is likely to rise from 57% in FY11 to 63% in FY14f. We estimate
consolidatedEBITDAandPATtogrowataCAGRof16%and12%,respectively,
overFY12f
FY14f.
We
estimate
negative
financial
leverage
over
FY12f
FY14f
on
accountofhigherdepreciationandeffectivetaxrate.
InitiatewithanAddratingandaMar13pricetargetofINR303
WearriveatfairvaluesofINR113/shareandINR177/shareforthestandalone
and JLR businesses, respectively. We have valued the standalone business at
9.0x EV/EBITDA, based on the mean valuations of the previous CV cycle. We
havevaluedJLRat2.7xEV/EBITDA,basedonthethreeyear(20092011)mean
valuations of Audi AG (NSU GR, NR). We have valued other subsidiaries and
investmentsat INR13/share.Our Mar13SOTPbased targetstandsat INR303,
whichprovidesanupsideof13%.We initiatecoverageonTTMTwithanAdd
rating.Riskfactorsarehighercommoditypricesandfuelprices.
LastPrice(INR)Bloomberg code
Reuterscode
Avg.Vol.(3m)(mn)
Avg.Val.(3m)(INRbn)
52wkH/L(INR)
Sensex
MCAP(INRbn/USDbn)
Shareholding(%) 9/11 12/11
Promoters
MFs,FIs,
Banks
FIIs
Public
Others
StockChart(RelativetoSensex)
StockPerfm.(%) 1m 3m 1yr
Absolute
Rel.toSensex
Financials(INRmn) 03/11 03/12f 03/13f
Sales
YoY(%)
EBITDA(%)
A.PAT
Sho/s(diluted)
A.EPS(INR)
YoY(%)
D/E(x)
P/E(x)
EV/E(x)
RoCE(%)
RoE(%)
QuarterlyTrends 03/11 06/11 09/11 12/11
Sales(INRbn)
PAT(INRbn) 25
356
9.9
6.1
22
66
21
336
TTMTIN
TAMO.BO
17.9
293/138
3.79
33
14.4
90,426
1.2
3,339
27.1
149
9
14.1
107,407
29
14.5
113,968
0.5
19
0.8
19
8.3
34
362
4.34.8
21
46
22.5
14.1
55.7
42.7 18.9
36
3,339
32.2
23
453
3,339
24.8
8.1
16.8
34.1
6
7.9
19.3
31.1 31.1
18,145
722.55/14.68
1,231,333
20.1
18.1
22.7
8.2
17.9
1,741,9121,594,303
269
100
150
200
250
300
Feb11 Jun11 Oct11 Feb12
Tata Motors Sensex Rebased
SriRaghunandhanNL,+9102266842863
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TableofContents
Investmentsummary......................................................................................................................... 3Growthindevelopingcountries,launchesextendgoodtimesforJLR .................................................3CargoSCVscontinuetodriveCVsalesvolumegrowth.........................................................................3ForecastthreeyearCAGRof16%intotalincomeduetoJLR...............................................................3InitiatewithanAddratingandaMar13pricetargetofINR303...........................................................3
Growthindevelopingcountries,launchesextendgoodtimesforJLR.............................................. 5Stronggrowthduetorisingsalesindevelopingcountries.................................................................5andproductlaunches .........................................................................................................................6IndianpassengervehiclebusinesslikelytorecoverfromFY13f ...........................................................6
CargoSCVscontinuetodriveCVgrowth........................................................................................... 8RobustgrowthofcargoSCVsinthedomesticmarket .......................................................................8andinexportmarkets.........................................................................................................................9MHCVgrowthlikelytorecoverfromFY13f...........................................................................................9
ForecastthreeyearCAGRof16%intotalincomeduetoJLR ......................................................... 11StandalonesalesvolumegrowthledbyLCVs .....................................................................................11RisingcontributionofJLRinconsolidatedtotalincome .....................................................................11NegativefinancialleverageoverFY12fFY14f .....................................................................................12Freecashflowandlowernetdebt/equitydespitehugecapex ..........................................................12
InitiatewithanAddratingandaMar13pricetargetofINR303 ..................................................... 14Loweringcapitalizationratetoarriveatadj.EBITDAforJLR ..............................................................14SOTPbasedtargetofINR303;initiatecoveragewithAddrating .......................................................14Riskfactors ..........................................................................................................................................17
Financialsandvaluations(consolidated)......................................................................................... 18Annexure:PVsalesvolumes,growthandtopplayers..................................................................... 21
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Investmentsummary
JLRiswitnessingrobustsalesvolumegrowthonaccountofgrowingacceptanceofitsvehiclesindevelopingcountries.
Despiteaslowdown
in
developed
countries,
JLRs
sales
volumes
are
likely
to
grow
at
aCAGR
of
15%
over
FY12f
FY14f.
Inaddition,successful launchessuchasEvoqueare likelytocontributetogrowth.WeestimateEvoquetocontribute
more than c35% of JLRs sales volumes by FY14f. In the standalone business, domestic cargo SCV sales volumes are
witnessingrobustgrowthonaccountofgrowthinlastmiletransportationandashiftinpreferencefromcargothree
wheelerstoSCVsforfreightoperators.WeestimatedomesticLCVstogrowataCAGRof20%overFY12fFY14f,ledby
robustgrowthincargoSCVs.WealsoestimatearecoveryindomesticMHCVsalesvolumegrowthto10%byFY13fon
accountofapickupininvestmentactivityduetothelikelyreversalintheinterestratecycle.Meanwhile,weestimate
deteriorationinconsolidatedPATmarginsoverFY12fFY14f,implyingnegativefinancialleverageonaccountofhigher
depreciation and effective taxrate.We havevalued thestandalonebusiness at9.0xEV/EBITDA,basedon themean
valuations of the previous cycle. We have valued JLR at 2.7x EV/EBITDA, based on threeyear (20092011) mean
valuationsofAudiAG(NSUGR,NR).OurMar13SOTPbasedtargetstandsatINR303,whichprovidesanupsideof13%.
Weinitiate
coverage
on
TTMT
with
an
Add
rating.
Risk
factors
are
higher
commodity
prices
and
fuel
prices.
Growthindevelopingcountries,launchesextendgoodtimesforJLR
Jaguar Land Rover (JLR) has been witnessing robust sales volume growth due to the growing
acceptance of its vehicles in developing countries. We estimate the contribution of developing
countries tosales volumes to increase from 33.3% in FY11 to 50.4% inFY14f. Inaddition, successful
launchofEvoqueislikelytopropelJLRssalesvolumes.WeestimateEvoquetocontributemorethan
c35% of JLRs sales volumes by FY14f. JLRs robust sales volume growth is likely to continue, with a
CAGRof15%overFY12fFY14f.WealsoestimatearevivalinTataMotors(TTMT)standalonedomestic
passenger vehicle (PV) sales volume growth to 10% by FY13f on account of launches and the likely
reversalintheinterestratecycle.
Cargo
SCVs
continue
to
drive
CV
sales
volume
growth
Lightcommercialvehicles(LCVs)havebeendrivinggrowth incommercialvehicle (CV)salesvolumes,
whereas growth in LCVs has been driven by cargo small commercial vehicles (SCVs). We estimate
domestic cargo SCVs to grow at a CAGR of 22% over FY12fFY14f on account of growth in lastmile
transportationandashift inpreferencefromcargothreewheelerstoSCVsforfreightoperators.We
alsoestimateTTMTtoreplicatethisgrowthinexportmarketsonaccountofgrowingacceptanceofits
cargoSCVsindevelopingcountries.Meanwhile,weestimatedomesticmediumandheavycommercial
vehicle (MHCV) sales volume growth to recover to 10% by FY13f after moderation to singledigit
growthinFY12f,onaccountofapickupininvestmentactivityduetothelikelyreversalintheinterest
ratecycle.Therehasalsobeenarevival insalesvolumegrowth(TTM)forLCVs;this isusuallya lead
indicatorofarevivalinMHCVsalesvolumegrowth.
Forecastthree
year
CAGR
of
16%
in
total
income
due
to
JLR
ConsolidatedtotalincomeislikelytogrowataCAGRof16%overFY12fFY14f,ledbyJLRsincreasing
contribution.JLRscontributiontototalincomeislikelytoincreasefrom57%inFY11to63%inFY14f.
WeestimateJLRandthestandalonebusinesstoreportaCAGRof19%and11%,respectively,intotal
income overFY12fFY14f.WeestimateconsolidatedEBITDA and PATto growataCAGRof16%and
12%, respectively, over FY12fFY14f. We estimate deterioration in consolidated PAT margins over
FY12fFY14f, implying negative financial leverageonaccount of higherdepreciationandeffectivetax
rate.Meanwhile,TTMTsconsolidatednetdebt/equity is likelytodeclinefrom1.2x inFY11to0.3xin
FY14fonthebackofpositivefreecashflows.
InitiatewithanAddratingandaMar13pricetargetofINR303
WehaveusedtheEV/EBITDAapproachtoarriveatafairvalueofINR113/shareandINR177/sharefor
thestandaloneandJLRbusinesses,respectively.WehaveadjustedJLRsEBITDAsothat itreflectsan
Weestimatethe
contributionofdeveloping
countriestosalesvolumes
toincreasefrom33.3%in
FY11to50.4%inFY14f.
DomesticcargoSCVsto
growataCAGRof22%
overFY12fFY14f.
JLRscontributiontototal
incomeislikelyto
increasefrom57%inFY11
to63%inFY14f.
Initiatecoveragewithan
Addrating
with
a
Mar13
TPofINR303.
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R&D capitalization rate similar to that of peers. We have valued the standalone business at 9.0x
EV/EBITDA, based on the mean valuations of the previous cycle. We have valued JLR at 2.7x
EV/EBITDA, based on threeyear (20092011) mean valuations of Audi AG (NSU GR, NR). We have
valued
other
subsidiaries
and
investments
at
INR13/share.
Our
Mar13
SOTPbased
target
stands
at
INR303, which provides an upside of 13%. We initiate coverage on TTMT with an Add rating. Risk
factorsarehighercommoditypricesandfuelprices.
Exhibit1:OneyearforwardrollingEV/EBITDAandEV/EBITDAattargetprice
0
10
20
30
Apr07 Feb08 Dec08 Oct09 Sep10 Jul11 May12 Mar13
1yrFwdEV/EBITDA Ta rgetEV/EBITDA Ave ra geEV/EBITDA
Source:Bloomberg,AvendusResearch
Exhibit2:Valuationsummary(INRmn) Totalincome EBITDA NetProfit EPS(INR) P/E(x) EV/EBITDA(x) EV/Sales(x) P/B(x)
Mar10 925,193 86,142 28,307 10.9 24.7 11.0 1.0 8.3
Mar11 1,231,333 177,800 90,426 27.1 9.9 6.1 0.9 4.5
Mar12f 1,594,303 224,797 107,407 32.2 8.3 4.8 0.7 3.1
Mar13f 1,741,912 252,577 113,968 34.1 7.9 4.3 0.6 2.2
Mar14f 1,900,106 275,515 127,245 38.1 7.0 3.7 0.5 1.8
Source:Company,AvendusResearch
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Growthindevelopingcountries,launchesextendgoodtimesforJLR
JLR has been witnessing robust sales volume growth due to the growing acceptance of its vehicles in developing
countries.We
estimate
the
contribution
of
developing
countries
to
sales
volumes
to
increase
from
33.3%
in
FY11
to
50.4%inFY14f.Inaddition,successfullaunchofEvoqueislikelytopropelJLRssalesvolumes.WeestimateEvoqueto
contributemorethanc35%ofJLRssalesvolumesbyFY14f.JLRsrobustsalesvolumegrowthislikelytocontinue,with
aCAGRof15%overFY12fFY14f.WealsoestimatearevivalinTTMTsstandalonedomesticPVsalesvolumegrowthto
10%byFY13fonaccountoflaunchesandthelikelyreversalintheinterestratecycle.
Stronggrowthduetorisingsalesindevelopingcountries
Global luxuryvehiclesalesvolumesandvaluestoodat5.5mnandcUSD300bn,respectively, in 2010.
WehavearrivedatthesevaluesbyaggregatingsalesoftheTop10 luxuryvehiclemanufacturers.JLR
contributesc4%andc5%ofgloballuxuryvehiclesalesvolumesandvalue,respectively.
WeestimateJLRssalesvolumestogrowataCAGRof15%overFY12fFY14fonaccountofthegrowing
contributionof
developing
countries
and
product
launches.
The
contribution
of
developing
countries
to
totalretailsalesvolumesislikelytoincreasefrom33.3%inFY11to50.4%inFY14fonaccountofrobust
salesvolumegrowthindevelopingcountries(CAGRof32%overFY12fFY14f).
Exhibit3:Retailsalesvolumebreakupacrossgeographies(%)Country/Region FY10 FY11 9MFY12
NorthAmerica 20.0 20.3 19.4
Europe,excludingRussiaandUK 24.3 22.3 22.0
UK 27.4 24.1 19.1
Russia 4.2 4.9 5.2
China 8.2 12.0 16.3
Others 15.9 16.4 18.0
Developedcountries 71.7 66.7 60.5
Developingcountries
28.3
33.3
39.5
Totalretailsalesvolumes(000s) 208.2 240.9 216.4
Totalincome(INRbn) 493.8 721.5 726.5
Source:Company
Faster growth in the population of high networth individuals (HNIs) in developing countries has
resultedinrobustdemandforluxuryvehicles.
Exhibit4:GrowthinHNIpopulation(%)2005 2010 CAGRover20052010
Developedregions/countries
NorthAmerica 2.85 3.44 4
Europe 2.80 3.12 2
Developingregions/countries
LatinAmerica 0.30 0.50 11
AsiaPacific 2.35 3.34 7
China 0.32 0.54 11
India 0.08 0.15 13
Brazil 0.11 0.16 7
Russia 0.10 0.13 5
Source:CapgeminiWorldWealthReport2005and2010
JLR is planning to set up nationalsales companiesandassembly/manufacturing plants in developing
countriestotakeadvantageoftherobustdemand inthesemarkets.Thesestepsare likelytofurther
reducethedependenceondevelopedcountries.
Weestimatesales
volumesindeveloping
countriestogrowata
CAGRof32%overFY12f
FY14f.
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andproductlaunches
JLRs latest product offering, Evoque, has received strong order bookings across the world. We
estimateEvoquetocontributemorethan35%ofJLRssalesvolumesbyFY14f.The launchofEvoque
hasfurther
strengthened
the
lower
end
of
JLRs
product
portfolio.
JLRisplanningtospendGBP0.5bneveryyearoverthenextfewyearsonnewproductdevelopment.
Exhibit5:ScheduleforproductlaunchesModel Remarks
2012 XFestateandfacelift
2012 XEsportscar IncompetitiontoPorscheBoxster
2013 XJfacelift
2013 NewXK
2014 Compactsaloon IncompetitiontoBMW3series
2014 Crossover
2015 NewXF IncompetitiontoBMW5series
2017 XJCoupe
2018 ThirdgenerationalloyXJ
2020 SecondgenerationXE
2023 ThirdgenerationXK
Source:Company
Exhibit6:WorldwideproductportfolioBrand Models PriceRange(GBP)*
Jaguar XF 28,22847,555
XJ 48,68682,490
XK 57,07197,000
LandRover Defender 20,18531,660
Freelander2 20,81333,959
Evoque 27,95444,315
Discovery4 36,50949,181
RangeRoverSport 45,43969,447
RangeRover 65,36681,228
Source:Company Note:*OnroadpricesinUK
IndianpassengervehiclebusinesslikelytorecoverfromFY13f
IncontrasttorobustgrowthinJLR,TTMTsdomesticPVsalesvolumesarelikelytowitnessafallof1%
in FY12f on account of rising competition and interest rates. The Indian PV industry has 19 players,
including3playersthatenteredthemarketinthepastthreeyears.ThePVindustrycanbedividedinto
passengercars,utilityvehiclesandmultipurposevehicles.Increasingcompetitionhasresultedinlower
marketshareforTTMTinpassengercarsandutilityvehicles.
Exhibit7:DomesticpassengercarmarketsharefortheTop3players(%)
FY06 FY07 FY08 FY09 FY10 FY11 FY12ytd
MarutiSuzuki 51.7 51.0 51.4 52.2 50.1 48.7 42.1
HyundaiMotorIndia 17.9 18.1 18.0 20.0 20.6 18.1 19.8
TataMotors 17.1 16.6 13.9 13.2 13.2 12.9 12.7
Source:SocietyofIndianAutomobileManufacturers(SIAM)
Exhibit8:DomesticutilityvehiclemarketsharefortheTop3players(%)FY06 FY07 FY08 FY09 FY10 FY11 FY12ytd
Mahindra&Mahindra 43.2 40.8 42.4 47.2 55.2 52.5 55.6
ToyotaKirloskarMotor 18.9 19.8 19.7 17.0 19.7 20.0 18.3
TataMotors 19.5 21.7 20.3 18.5 13.0 13.6 12.5
Source:SIAM
WeestimateEvoqueto
contributemorethan
c35%of
JLRs
sales
volumesbyFY14f.
TTMTsdomesticPVsales
volumesarelikelyto
witnessafallof1%in
FY12f.
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Exhibit9:DomesticmultipurposevehiclemarketsharefortheTop3players(%)FY06 FY07 FY08 FY09 FY10 FY11 FY12ytd
MarutiSuzuki 100.0 100.0 89.0 73.1 67.4 75.2 62.3
TataMotors
0.0 0.0 11.0 26.9
32.6
24.2 26.7
Mahindra&Mahindra 0.0 0.0 0.0 0.0 0.0 0.4 11.0
Source:SIAM
WehaveanalyzedthecompetitionintensityusingtheHerfindahlIndex.Thisindexshowsanincreasein
competition,especiallyoverthepastthreeyears,aftertheentryofnewplayers.
Exhibit10:HerfindahlIndexFY06 FY07 FY08 FY09 FY10 FY11 FY12ytd
Passengercars 33 33 32 33 32 29 24
Utilityvehicles 27 26 27 29 37 34 36
Multipurposevehicles 100 100 80 61 56 62 47
Source:SIAM,AvendusResearch Note:Lowerindexvalueindicateshighercompetition.
AnotherimpactofhighercompetitionistheincreasingsalespromotionexpenditureforTTMT.
Exhibit11:Salespromotionexpenditureasapercentageoftotalincome(%)FY06 FY07 FY08 FY09 FY10 FY11
Salespromotionexpenditureasa%oftotalincome 3.7 3.9 4.1 4.8 4.7 4.8
Source:Company
In addition to rising competition, headwinds such as commodity inflation and interest ratesarealso
likelytoimpactsalesvolumesinFY12f. Commodityinflationhasresultedinac5%hikeinvehicleprices
overthepast12months.Growinginterestrateshavealsonegativelyimpactedsalesvolumesas60%
65% of vehicles are financed (Source: Mahindra & Mahindra). As per our analysis, the inverse
correlationbetweenPVsalesvolumesandinterestratesstandsatc55%.
Exhibit12:TrendinmonthlypassengervehiclegrowthandSBINsprimelendingrate
20
0
20
40
60
Jan07 Jan08 Jan09 Jan10 Jan11 Jan12
8
10
12
14
16
GrowthinPVsales volumes(%) SBINprimelendingrate(%)(RHS)
Source:StateBankofIndia,SIAM,AvendusResearch Note:StateBankofIndia(SBININ,Buy)
WeestimateTTMTsPVsalesvolumegrowthtoimproveto10%byFY13fonaccountoflaunchesand
thelikelyreversalintheinterestratecycle.WeestimateTTMTsdomesticPVsalesvolumestogrowat
aCAGRof6%overFY12fFY14f.
HerfindahlIndexindicates
anincreaseincompetition
intensity.
Asperouranalysis,the
inversecorrelation
betweenPVsalesvolumes
andinterestratesstands
atc55%.
WeestimateTTMTsPV
salesvolumegrowthto
improveto10%byFY13f.
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CargoSCVscontinuetodriveCVgrowth
LCVs have been driving growth in CV sales volumes, whereas growth in LCVs has been driven by cargo SCVs. We
estimate
domestic
cargo
SCVs
to
grow
at
a
CAGR
of
22%
over
FY12fFY14f
on
account
of
growth
in
last
mile
transportation and a shift in preference from cargo threewheelers to SCVs for freight operators. We also estimate
TTMT to replicate this growth in export markets on account of growing acceptance of its cargo SCVs in developing
countries.Meanwhile,weestimatedomesticMHCVsalesvolumegrowthtorecoverto10%byFY13faftermoderation
tosingledigitgrowthinFY12f,onaccountofpickupininvestmentactivityduetothelikelyreversalintheinterestrate
cycle.Therehasalsobeenarevivalinsalesvolumegrowth(TTM)forLCVs;thisisusuallyaleadindicatorofarevivalin
MHCVsalesvolumegrowth.
RobustgrowthofcargoSCVsinthedomesticmarket
TTMTwitnessedaCAGRof26%initscargoSCV lessthan3.5tonnegrossvehicleweight(GVW) sales
volumes over FY07FY11, due to increased usage of these vehicles in lastmile transportation of the
distribution
chain
under
the
hub
and
spoke
model.
Lastmile
transportation
refers
to
cargo
transportation for a distance of less than 50km. In addition, a shift in preference from cargo three
wheelerstoSCVsforfreightoperatorshasalsoaddedtothedemand.
Exhibit13:MarketshareinthedomesticcargoSCVsegment(%)FY06 FY07 FY08 FY09 FY10 FY11 FY12ytd
TataMotors 59.4 68.6 64.8 60.5 57.2 56.0 57.5
Mahindra&Mahindra 38.0 29.1 28.6 32.1 35.8 38.1 36.2
PiaggioVehicles 0.0 0.0 3.1 6.1 5.2 3.4 3.3
ForceMotors 2.6 2.2 3.5 1.3 1.7 2.4 1.7
AshokLeyland 1.3
HindustanMotors 0.0 0.1 0.0 0.0 0.1 0.1 0.0
Source:SIAM
TTMTisthemarketleaderinthedomesticcargoSCVsegmentwith57.5%marketshareinFY12year
todate.Inanefforttoretainthismarketshare,thecompanyhaslaunchedcargoSCVsoflessthan1.5
tonneGVW inMay11.ThetilttowardscargoSCVsmay increasefurtherdueto introductionofthese
vehicles.These1.5tonneGVWcargovehiclesarefasterandhavemarginallyhigherloadingcapacities
thanexistingcargothreewheelers.Asperouranalysis,profitabilityisalsohigherforthesevehicles.
Exhibit14:AnnualincomestatementforanSCVandacargothreewheelerforafreightoperator(INR) SCV TataAceZip(1.29tonnes) Cargo3WBajajGCMax(0.99tonnes)
Revenues 392,229 316,584
Fuelcost 100,464 78,284
Salary 120,000 120,000
Maintenance 11,702 9,250
Roadtaxes,tollsetc 72,000 60,000
EBITDA 88,063 49,051
EBITDAMargin(%) 22.5% 15.5%
Interest 16,116 12,740
Depreciation 17,552 13,875
Tax 36,716 15,144
PAT 17,678 7,292
PATMargin(%) 4.5% 2.3%
RoE(%) 15.1% 7.9%
Onroadprice(Mumbai) 234,000 185,000
Source:AvendusResearch Note:Basedonsamplesurveyoffreightoperators
1.5tonneGVWcargoSCVs
havehigherprofitabilityin
comparisontothree
wheelers.
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WeestimatedomesticLCVsalesvolumes togrow at aCAGRof20%overFY12fFY14f, ledbyrobust
growthincargoSCVs(CAGRof22%).ThecontributionofcargoSCVstodomesticLCVsalesvolumesis
likelytoincreasefrom75.7%inFY11to79.4%inFY14f.
Exhibit15:EstimateddomesticcargoSCVsalesvolumesandcontributiontoLCVvolumesFY06 FY07 FY08 FY09 FY10 FY11 FY12f FY13f FY14f
DomesticcargoSCVvolumes(000s) 48.0 90.6 101.8 89.2 121.4 152.2 197.9 231.5 273.2
CargoSCVsas%ofdomesticLCVvolumes(%) 55.7 72.0 75.9 74.2 72.5 75.7 77.2 78.0 79.4
Source:SIAM,AvendusResearch
andinexportmarkets
Cargo SCVs became an important part of the domestic LCV market after their introduction in FY06.
TTMTistryingtoreplicatethesamesuccessinotherdevelopingcountries.ThecompanysLCVexport
volumesgrewataCAGRof8%overFY07FY11,mainlyledbygrowthincargoSCVs(CAGRof14%).We
estimate exportvolumesofcargoSCVs togrowat aCAGR of 24%over FY12fFY14f,which ishigher
than
historical
growth,
due
to
the
growing
acceptance
of
these
vehicles
in
developing
countries.
Meanwhile, TTMT is also planning to set up assembly units for cargo SCVs in Indonesia, Brazil and
EasternEurope.
WeestimateexportvolumesofLCVstogrowataCAGRof23%overFY12fFY14f,ledbyrobustgrowth
incargoSCVs.ThecontributionofcargoSCVstoLCVexportvolumesislikelytoincreasefrom76.5%in
FY11to83.6%inFY14f.
Exhibit16:EstimatedexportvolumesofcargoSCVsandcontributionFY06 FY07 FY08 FY09 FY10 FY11 FY12f FY13f FY14f
ExportvolumesofcargoSCVs(000s) 13.0 14.0 14.5 7.7 10.8 24.9 32.4 38.8 46.6
CargoSCVsasa%ofexportvolumesofLCVs(%) 59.3 59.6 55.6 45.3 72.3 76.5 83.2 83.3 83.6
Source:SIAM,AvendusResearch
MHCVgrowth
likely
to
recover
from
FY13f
We estimate singledigit growth in domestic MHCV sales volumes in FY12f due to postponing of
purchasesbyfreightoperatorsonaccountof lowerroadfreightavailability. Inaddition,theexpiryof
the JawaharlalNehruNationalUrbanRenewalMissionscheme inDec11 isalso likely to impactsales
volumes.
Weestimate TTMTsgrowth torevive fromFY13fonaccountofapick up in investmentactivityand
freightavailabilityduetothelikelyreversal inthe interestratecycle.Therehasalsobeenarevivalin
salesvolumegrowth(TTM)forLCVs;thisisusuallyaleadindicatorofarevival inMHCVsalesvolume
growth.Asperourobservation,arevivalinLCVsalesvolumegrowthisusuallyfollowedbyarevivalin
MHCV sales volume growth with a lag of 46 months. In line with this hypothesis, after LCV sales
volumes saw a revival in Jun11, MHCV sales volume growth (TTM) recovered in Oct11. Meanwhile,
TTMT isalso ramping updisbursements from its financing division Tata MotorsFinance toaid its
salesvolumegrowth.WeestimateTTMTsdomesticMHCVsalesvolumes togrowataCAGRof11%
overFY12fFY14f,marginallyhigherthantheindustryCAGRof10%.
Exhibit17:DomesticMHCVsalesvolumegrowthforTTMTandindustry(%)FY07 FY08 FY09 FY10 FY11 FY12f FY13f FY14f CAGR(FY07FY11) CAGR(FY12fFY14f)
TTMT 34.7 4.2 31.5 36.5 23.8 8.7 10.2 14.1 8.3 11.0
Industry 32.8 0.4 33.2 33.5 31.7 6.3 10.0 13.9 9.2 10.1
Source:SIAM,AvendusResearch
Weestimatedomestic
MHCVsalesvolume
growthtorecoverto10%
byFY13f.
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Exhibit18:DomesticMHCVmarketshare(%)FY06 FY07 FY08 FY09 FY10 FY11 FY12f FY13f FY14f
AL 27.0 27.9 27.5 25.7 23.3 25.7 23.3 23.0 22.7
EIM*
7.4 6.8 8.2 7.4 8.6 9.4
10.8
10.8 10.6
TTMT 62.0 62.9 60.5 61.9 63.3 59.5 60.8 60.9 61.0
Source:SIAM,AvendusResearch Note:*IncludestradedvehiclesofVolvoAB
DomesticCVsalesvolumesareestimatedtogrowataCAGRof16%overFY12fFY14f,ledbyaCAGRof
20%and11%inLCVsandMHCVs,respectively.
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ForecastthreeyearCAGRof16%intotalincomeduetoJLR
ConsolidatedtotalincomeislikelytogrowataCAGRof16%overFY12fFY14f,ledbyJLRsincreasingcontribution.JLRs
contributionto
total
income
is
likely
to
increase
from
57%
in
FY11
to
63%
in
FY14f.
We
estimate
JLR
and
the
standalone
businesstoreportaCAGRof19%and11%,respectively, intotal incomeoverFY12fFY14f.Weestimateconsolidated
EBITDA and PAT to grow at a CAGR of 16% and 12%, respectively, over FY12fFY14f. We estimate deterioration in
consolidatedPATmarginsoverFY12fFY14f,implyingnegativefinancialleverageonaccountofhigherdepreciationand
effectivetaxrate.Meanwhile,TTMTsconsolidatednetdebt/equityislikelytodeclinefrom1.2xinFY11to0.3xinFY14f
onthebackofpositivefreecashflows.
StandalonesalesvolumegrowthledbyLCVs
Thestandalonebusinesshasbeenwitnessingrobustvolumegrowth inLCVs incomparisontoMHCVs
andPVs.Weestimatethistrendtocontinue,withaCAGRof20%,11%and6%indomesticLCV,MHCV
andPVsalesvolumes,respectively,overFY12fFY14f.Therobustexportvolumegrowth(CAGRof12%
over
FY12f
FY14f)
in
the
standalone
business
is
likely
to
continue
on
account
of
growing
acceptance
of
IndianCVs indevelopingcountries,despitepricehikes.Withdrawalofexport incentivessuchasDuty
EntitlementPassBook(DEPB)arelikelytoonlyresultinpricehikesincargoCVs,aspassengerCVsand
PVs were not part of the DEPB scheme. Export of cargo CVs stood at a meager 2.2% of total sales
volumesinFY11.
Overall (includes LCV, MHCV, PV and exports) sales volume growth for the standalone business is
estimatedataCAGRof11%overFY12fFY14f.
Exhibit19:EstimatedvolumesandtotalincomeFY11 FY12f FY13f FY14f CAGRoverFY12fFY14f(%)
Standalonebusiness
DomesticLCVvolumes(000s) 201,018 256,376 296,795 343,957 19.6
DomesticMHCVvolumes(000s) 192,127 208,799 230,180 262,634 11.0
DomesticPVvolumes(000s) 352,180 350,974 385,607 423,663 6.4
Exportvolumes(000s) 58,048 59,531 69,882 82,073 12.2
Totalvolumes(000s) 803,373 875,680 982,465 1,112,326 11.5
Totalincome(INRmn) 480,405 533,933 588,073 665,184 11.5
Source:SIAM,Company,AvendusResearch
RisingcontributionofJLRinconsolidatedtotalincome
JLRssalesvolumegrowthoverFY12fFY14fishigherthanthatofthestandalonebusiness.JLRssales
volumesarelikelytogrowataCAGRof15%onthebackoflaunchesandrobustgrowthindeveloping
countries.WeestimateconsolidatedtotalincometogrowataCAGRof16%overFY12fFY14f,mainly
ledbygrowthinJLR.
Exhibit20:Estimatedsalesvolumesandtotalincome
FY11 FY12f FY13f FY14f CAGRoverFY12fFY14f(%)
JaguarLandRover
Totalvolumes(000s) 243,621 306,407 337,048 370,752 15.0
Totalincome(INRmn) 721, 490 1, 033, 356 1, 123,192 1, 200,625 18.5
Consolidated
Totalincome(INRmn) 1,231,333 1,594,303 1,741,912 1,900,106 15.6
Source:Company,AvendusResearch
JLRcontributed57%ofconsolidatedtotalincomeinFY11;weestimatethiscontributiontoincreaseto
63%byFY14f.
WithdrawalofDEPB
benefitsunlikelytohavea
significantimpacton
exportvolumes.
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NegativefinancialleverageoverFY12fFY14f
EBITDA margins are likely to broadly remain at similar levels over FY12FY14f. Although there is a
decline inEBITDA margins in thestandalonebusinessonaccountofhigher input costs, thisnegative
impacthas
been
fully
offset
by
higher
EBITDA
margins
in
JLR.
JLRs
contribution
to
EBITDA
is
likely
to
increasefrom69.1%inFY11to77.6%inFY12f.
Exhibit21:EstimatedEBITDAmargins(%)FY11 FY12f FY13f FY14f
Standalone 9.9 7.5 8.3 8.5
JaguarLandRover 16.3 17.9 18.2 18.2
Consolidated 14.4 14.1 14.5 14.5
Source:Company,AvendusResearch
We estimate negative financial leverage over FY12fFY14f. Consolidated PAT growth is likely to be
lowerthanEBITDAgrowthonaccountofhigherdepreciationandeffectivetaxrateinJLR.
Exhibit
22:Estimated
consolidated
total
income,
EBITDA
and
PAT
(INRmn) FY11 FY12f FY13f FY14f CAGRoverFY12fFY14f(%)
Totalincome 1,231,333 1,594,303 1,741,912 1,900,106 15.6
EBITDA 177,800 224,797 252,577 275,515 15.7
PAT 90,426 107,407 113,968 127,245 12.1
Source:Company,AvendusResearch
Thehigherdepreciation inJLRisonaccountofthehugecapex(GBP1.5bnperyear)plannedoverthe
next fewyears.Theeffectivetaxrate forJLR isestimated to increaseonaccountof incorporationof
national sales companies (NSCs). JLR has been setting up NSCs in several developing countries to
benefitfromrobustdemandinthesemarkets.AstheseNSCsareliabletopaytax,theoveralleffective
taxrateforJLRislikelytoincreasefrom7%inFY11to21%inFY14f.
Freecash
flow
and
lower
net
debt/equity
despite
huge
capex
The company is incurring huge capex (INR450bn) over FY12fFY14f. This capex is mainly in JLR on
accountoftheincreasedfocusonnewproductdevelopment.
Exhibit23:Estimatedfreecashflowandnetdebttoequity
0
20,000
40,000
60,000
80,000
FY11 FY12f FY13f FY14f
0.0
0.3
0.6
0.9
1.2
FCF(INRmn) Netdebttoequity(x) RHS
Source:Company,AvendusResearch
Negativefinancial
leverageoverFY12fFY14f.
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Exhibit24:Trendinconsolidatedcapitalexpenditure(INRmn) FY06 FY07 FY08 FY09 FY10 FY11 F Y12f FY13f FY14f
Consolidatedcapitalexpenditure 12,592 27,588 52,804 99,708 81,240 84,754 156,881 157,960 142,014
Capexas
a%
of
net
fixed
assets
(%) 23 37 41 28 21
20
29 25 21
Source:Company,AvendusResearch
WeestimateTTMTtomeetitscapexrequirementsfrominternalaccrualsandreportpositivefreecash
flows over FY12fFY14f. On account of positive free cash flows and conversion of convertible
alternativereferencesecurities,weestimatethenetdebt/equitytoreducefrom1.2xinFY11to0.3xin
FY14f.
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InitiatewithanAddratingandaMar13pricetargetofINR303
WehaveusedtheEV/EBITDAapproachtoarriveatafairvalueofINR113/shareandINR177/shareforthestandalone
andJLR
businesses,
respectively.
We
have
adjusted
JLRs
EBITDA
so
that
it
reflects
an
R&D
capitalization
rate
similar
to
that of peers. We have valued the standalone business at 9.0x EV/EBITDA, based on the mean valuations of the
previouscycle.WehavevaluedJLRat2.7xEV/EBITDA,basedonthreeyear(20092011)meanvaluationsofAudiAG.
Wehavevaluedothersubsidiariesand investmentsat INR13/share.OurMar13SOTPbased targetstandsat INR303,
whichprovidesanupsideof13%.WeinitiatecoveragewithanAddrating.Riskfactorsarehighercommoditypricesand
fuelprices.
Loweringcapitalizationratetoarriveatadj.EBITDAforJLR
TTMTcapitalizesmostof itsR&Dexpenditure inJLR(81.7%capitalized inFY11).As thecapitalization
rate for European peers is lower, we have lowered the capitalization rate for JLR to 50% in our
estimatestoarriveatadjustedEBITDAoverFY12fFY14f.
Exhibit25:R&DcapitalizationrateinEuropeancompanies(%)
R&DcapitalizationrateinFY11/2010
AudiAG 33.1
BMWAG 34.3
DaimlerAG 28.3
Source:Company,AvendusResearch
Exhibit26:EstimatedAdj.EBITDAinforJLR(INRmn) FY11 FY12f FY13f FY14f
EBITDA 117,903 186,009 204,915 218,775
Adj.EBITDA 102,862 152,212 170,847 185,828
Source:Company,AvendusResearch
WeusethisadjustedEBITDAinourEV/adj.EBITDAapproachforvaluingJLR.
SOTPbasedtargetofINR303;initiatecoveragewithAddrating
WevaluethestandalonebusinessofTTMTatanEV/EBITDAof9.0x,basedonmeanvaluationsover
thepreviousCVcycle.WeapplythismultipletoarriveatafairvalueofINR113/share.
Exhibit27:TTMTsstandaloneoneyearforwardrollingEV/EBITDAandEV/EBITDAattargetprice
0
7
14
21
Apr07 Feb08 Dec08 Oct09 Sep10 Jul11 May12 Mar13
1yrFwdEV/EBITDA Target1yrfwdEV/EBITDA
AverageEV/EBITDA
Source:Bloomberg,AvendusResearch
Thecapitalization
rate
for
peersisuptoc50%in
Europeancompanies.
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The earnings growth over FY12fFY14f is lower than historical (FY08FY11) growth on account of
moderationindomesticMHCVandPVsalesvolumesinFY12f.Weestimatethistrendtoreverseover
FY13fFY14f;earningsgrowth islikelytoberobust(CAGRof26%)overFY13fFY14fonaccountofthe
likelyrecovery
in
domestic
MHCV
and
PV
sales
volume
growth.
Exhibit28:ComparisonofhistoricalandfuturegrowthofTTMTsstandalonebusiness(%) Totalincomegrowth EBITDAgrowth *EPSgrowth
CAGRoverFY08FY11 14.9 9.5 9.8
CAGRoverFY12fFY14f 11.5 6.0 8.5
CAGRoverFY13fFY14f 11.6 18.8 25.8
Source:Company,AvendusResearch Note:*AvendusEPS
WehavevaluedtheJLRbusinessat2.7xEV/EBITDA,basedonthreeyear(20092011)meanvaluations
ofNSU.Applyingthismultiple,wearriveataMar13fairvalueofINR177/shareforJLR.
AlthoughJLRissmallerinsizeincomparisontoNSU,earningsgrowthissignificantlyhigheroverFY12f
FY14f.
Exhibit29:SizecomparisonbetweenJLRandNSU(FY11/2010) Salesvolumes Totalincome(INRmn)
JaguarLandRover 243,621 9,905
AudiAG(NSU)* 1,293,453 30,413
Source:Company,Bloomberg,AvendusResearch Note:*YearendingDecember
Exhibit30:ComparisonofgrowthofJLRandNSUsbusinesses(%) Totalincomegrowth EBITDAgrowth EPSgrowth
NSUCAGRover20082010 1.8 3.7 16.1
NSUCAGRover2011f2012f 2.4 4.2 0.8
JLRCAGRoverFY12fFY14f* 15.4 19.6 14.8
Source:Bloomberg,
Avendus
Research
Note:*JLR
numbers
converted
to
EUR
for
comparison
Exhibit31:NSU'soneyearforwardrollingEV/EBITDA
0
2
4
6
Jan09 Jun09 Nov09 Apr10 Sep10 Feb11 Jul11 Dec11
1yrFwdEV/EBITDA AverageEV/EBITDA
Source:Bloomberg,AvendusResearch
We have valued other subsidiaries and investments at INR13/share. Our Mar13 SOTPbased target
standsatINR303,whichprovidesanupsideof13%.WeinitiatecoverageonTTMTwithanAddrating.
AtourMar13TP,thestocktradesatanEV/EBITDAof4.2x
EarningsgrowthataCAGR
of26%overFY13fFY14f.
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Exhibit32:SOTPvaluationStake
held
Basisof
valuation
Equityvalue
(INRmn)
Value/share
(INR)
Rationale
Standalone
9x
EV/EBITDA 378,052
113
Discount
to
previous
CV
cycle's
mean
EV/EBITDA
JaguarLandRover 100% 2.7xEV/EBITDA 590,617 177 BasedonNSU'sthreeyear(20092011)mean
EV/EBITDA
TataMotorFinance 100% 1xP/ABV 24,079 7 DiscounttoMahindra&MahindraFinancial
Services'(MMFSIN,Add)threeyearmean
P/ABV
TMLDrivelines 85% 9xP/E 20,895 6 DiscounttoAutomotiveAxles(ATXLIN,NR)
previousCVcycle'smeanP/E
Total 303
Source:AvendusResearch
Exhibit33:OneyearforwardrollingEV/EBITDAandEV/EBITDAattargetprice
0
10
20
30
Apr07 Feb08 Dec08 Oct09 Sep10 Jul11 May12 Mar13
1yr
Fwd
EV/EBITDA Ta rget
EV/EBITDA Ave ra ge
EV/EBITDA
Source:Bloomberg,AvendusResearch
Initiatecoveragewithan
AddratingwithaMar13
TPofINR303.
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Riskfactors
Rise in raw material prices: We have assumed stable raw material cost per vehicle over FY12fFY14f. If the prices of steel, aluminum and rubber increase, then the companys margins and
demandare
likely
to
be
adversely
affected.
Rise infuelprices:An increase infuelprices is likelyto leadtopostponementofCVpurchasesbyfreightoperators,asitnegativelyimpactstheirmargins.
Exhibit34:Sensitivityanalysis Impactonearningsonaccountof1%declinein:(%) FY12f FY13f FY14f
Standalonesalesvolumes 0.4 0.4 0.5
Standaloneblendedrealizations 4.6 4.4 4.5
Standalonerawmaterialcostpervehicle 2.8 2.6 2.7
JLRsalesvolumes 1.1 1.0 0.9
JLRblendedrealizations 5.2 5.1 5.0
JLRrawmaterialcostpervehicle 4.5 3.9 3.8
Source:AvendusResearch
Exhibit35:RelativevaluationsasonFebruary22,2012CMP Rating TargetPrice Upside PriceChange(%) P/E EV/E ROCE(%) ROE(%)
(INR) (INR) (%) 1m 3m 6m 2012f/
FY12f
2013f/
FY13f
2014f/
FY14f
2012f/
FY12f
2013f/
FY13f
2014f/
FY14f
2012f/
FY12f
2012f/
FY12f
AL 28 Buy 41 46 5.4 13.1 11.3 12.8 10.7 9.2 8.9 7.8 6.8 10.2 14.3
EIM* 1724 Add 1918 11 6.9 7.8 27.1 11.9 9.7 7.7 9.5 7.4 5.4 21.5 24.0
TTMT
268
Add
303
13
22.5 55.7 82.1 8.3 7.9 7.0 4.8
4.3
3.7
21.3 45.6Source:Bloomberg,AvendusResearch Note:*YearendingDecember,ProportionateshareofEIMinVECVconsideredforratios
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Financialsandvaluations(consolidated)
Incomestatement(INRmn)Fiscal
year
ending 03/10 03/11 03/12f 03/13f 03/14f
Grosssal es 949,416 1,267,125 1,641,541 1,793,524 1,956,405
Less:Excise duty 30,482 42,863 55,529 60,670 66,180
Netsal es 918,935 1,224,262 1,586,013 1,732,854 1,890,226
Other operatingincome 6,258 7,071 8,290 9,058 9,881
Totaloperatinginco me 925,193 1,231,333 1,594,303 1,741,912 1,900,106
Totaloperatingexpenses 839,051 1,053,533 1,369,506 1,489,335 1,624,591
Netmateri als 624,613 8 03,199 1,044,269 1,137,469 1,240,769
Other directcosts 41,257 4 7,761 6 3,241 6 8,708 7 4,948
Personnel 87,518 93,427 119,573 128,902 140,608
SG&A 81,366 102,505 132,621 144,248 158,342
R&D 4,297 6,641 9,803 10,009 9,924
EBITDA 86,142 177,800 224,797 252,577 275,515
Other income 17,931 896 1,767 967 967
Depreciat ion 43,853 56,180 68,679 80,585 90,585
EBIT 60,220 122,516 157,885 172,960 185,898
Interest 22,397 20,454 23,794 22,887 18,339
RecurringPB T 37,822 102,062 134,091 150,073 167,559
Netextraordinaryitems 2,596 2,310 5,273 2,111 2,216
PBT (reported) 35,226 104,372 128,818 152,184 169,775
Totaltaxes 10,058 12,164 27,052 36,524 40,746
PA T(repor ted) 25,169 92,208 101,766 115,660 129,029
Add:Shareo f earningsofassociat e 845 1,014 1,312 1,434 1,564
Less:Minorityi nterest 303 485 944 1,015 1,132
Priorperiod items 0 0 0 0 0
Netincome(reported) 25,711 92,736 102,134 116,079 129,461
Avendusneti ncome 28,307 90,426 107,407 113,968 127,245
Dividend +Distribution tax 10,019 14,813 14,910 17,233 21,905
Shares outstanding(mn) 2,532 3,189 3,189 3,294 3,294
Avendusdiluted
shares
(mn) 2,601 3,339 3,339 3,339 3,339
AvendusEPS (INR ) 10.9 27.1 32.2 34.1 38.1
Growthratios(%)Totaloperatingi ncome 30.4 33.1 29.5 9.3 9.1
EBITDA 292.0 106.4 26.4 12.4 9.1
EBIT NM 103.4 28.9 9.5 7.5
RecurringPB T NM 169.8 31.4 11.9 11.7
Avendusnet income NM 219.5 18.8 6.1 11.6
AvendusEPS NM 148.8 18.8 6.1 11.6
Operatingratios(%)EBITDAmargi n 9.3 14.4 14.1 14.5 14.5
EBIT m ar gin 6.5 9.9 9.9 9.9 9.8
Netprofitmargin 3.0 7.3 6.7 6.5 6.7
Other income/PBT 47.4 0.9 1.3 0.6 0.6
EffectiveTax
rate 28.6
11.7
21.0
24.0
24.0
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KeyRatiosFiscalyearending 03/10 03/11 03/12f 03/13f 03/14f
Valuationratios(x)
P/E (on Avendus EPS) 24.7 9.9 8.3 7.9 7.0
P/E (on basic,reportedEPS) 26.4 9.2 8.4 7.6 6.8
P/CEPS 9.7 6.1 5.1 4.6 4.1
P/BV 8.3 4.5 3.1 2.2 1.8
Dividend yield(%) 1.3 1.5 1.5 1.7 2.1
Marketcap. /F CF 11.1 28.6 37.7 20.3 10.5
Marketcap. /S ales 0.7 0.7 0.5 0.5 0.5
EV/Sales 1.0 0.9 0.7 0.6 0.5
EV/EBITDA 11.0 6 .1 4.8 4.3 3.7
EV/F CF 15.4 36.0 47.8 24.7 12.1
EV/TotalAssets 2.1 2.0 1.7 1.5 1.4
NetCash/ Marketcap. 14.4 14.2 16.5 14.8 12.2
Pershareratios(INR)
AvendusEPS 10.9 27.1 32.2 34.1 38.1
EP S(Basic,r epor ted) 10.2 29.1 32.0 35.2 39.3
Cash EPS 27.7 43.9 52.7 58.3 65.2
Book Value 32.4 60.1 8 7.5 120.5 153.2
Dividend pershare 3.4 4.0 4.0 4.5 5.7
ROEDecomposition(%)
EBIT margin 6.5 9.9 9.9 9.9 9.8
Assetturnover(x) 2.1 2.5 2.7 2.5 2.6
Interestexpenserati o 5.2 4.2 4.0 3.3 2.5
Tax retentionratio 71.4 88.3 79.0 76.0 76.0
RO A 6.6 18.4 18.1 16.7 17.4
Totalassets/equity (x) 6.4 3.6 2.5 2.0 1.6
RO E 42.2 66.1 45.6 33.7 28.2
Returnratios (%)
EBIT /CapitalEmploy ed 14.0 24.9 26.6 25.3 25.4
ROCE
10.3 22.0 21.3 19.2 19.3RO IC 16.8 38.8 36.7 30.5 28.5
FC F/IC 23.3 10.7 6.6 10.1 17.0
OCF /S ales 10.7 10.9 11.3 11.6 11.9
FC F/Sal es 6.6 2.4 1.4 2.5 4.4
Turnoverratios (x)
Grossturnover 1.4 1 .7 1.8 1.7 1.6
Nettur nover 3.1 3.9 3.8 3.4 3.3
Revenue/IC 3.5 4.4 4.6 4.0 3.8
Inventory/Sales(day s) 43.9 37.6 36.7 41.1 42.3
Receivables(days) 23.6 20.9 18.0 20.2 21.0
Payab les(days) 164.2 1 57.2 1 42.0 1 55.4 1 58.1
Working capitalcycle(excash)(days) 22.8 22.1 16.4 16.4 16.7
Solvencyratios(x)
Grossdebttoequity 4.5 1.8 1.3 0.8 0.5
Netdebt
to
equit y 3.3 1.2 0.8 0.5 0.3
Netdebtto EBITDA 3.1 1.2 1.0 0.7 0.5
InterestCoverage (EBIT/Interest) 2.7 6.0 6.6 7.6 10.1
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Annexure:PVsalesvolumes,growthandtopplayers
Passengercars FY07 FY08 FY09 FY10 FY11 CAGR%(FY07FY11)
Totalsales
volumes
(000s) 1269.2 1414.8 1551.0 1968.5 2430.1 10.5
Domesticsalesvolumes(000s) 1076.4 1203.7 1219.5 1526.8 1982.7 10.2
Exportsalesvolumes(000s) 192.7 211.1 331.5 441.7 447.4 12.2
Totalsalesvolumegrowth(%) 20.6 11.5 9.6 26.9 23.4
Domesticsalesvolumegrowth(%) 22.0 11.8 1.3 25.2 29.9
Exportsalesvolumegrowth(%) 13.4 9.5 57.0 33.2 1.3
Exportsaspercentageoftotalsalesvolume(%) 15.2 14.9 21.4 22.4 18.4
Top3Players
Domesticsalesvolumes(000s)
MarutiSuzuki 549.3 618.2 636.7 765.5 966.4
HyundaiMotorIndia 194.9 216.3 244.0 315.0 358.9
TTMT 179.0 167.1 160.4 201.4 256.2Domesticsalesvolumegrowth(%)
MarutiSuzuki 20.4 12.5 3.0 20.2 26.2 9.6
HyundaiMotorIndia 23.5 11.0 12.8 29.1 13.9 10.4
TTMT 18.6 6.7 4.0 25.5 27.2 7.5
Domesticmarketshare(%)
MarutiSuzuki 51.0 51.4 52.2 50.1 48.7
HyundaiMotorIndia 18.1 18.0 20.0 20.6 18.1
TTMT 16.6 13.9 13.2 13.2 12.9
Utilityvehicles FY07 FY08 FY09 FY10 FY11 CAGR%(FY07FY11)
Totalsalesvolumes(000s) 224.6 251.6 228.8 275.6 328.0 7.2
Domesticsalesvolumes(000s) 220.2 245.3 225.8 272.7 324.2 7.3
Exportsalesvolumes(000s) 4.4 6.3 3.0 2.8 3.8 3.2
Totalsalesvolumegrowth(%) 12.9 12.0 9.0 20.4 19.0
Domesticsalesvolumegrowth(%) 13.2 11.4 7.9 20.8 18.9
Exportsalesvolumegrowth(%) 1.9 42.7 51.6 7.1 34.2
Exportsaspercentageoftotalsalesvolume(%) 2.0 2.5 1.3 1.0 1.2
Top3Players
Domestic
sales
volumes
(000s)Mahindra&Mahindra 89.7 103.9 106.5 150.6 170.2
ToyotaKirloskarMotor 43.6 48.2 38.3 53.7 64.9
TTMT 47.9 49.7 41.8 35.5 44.2
Domesticsalesvolumegrowth(%)
Mahindra&Mahindra 6.8 15.8 2.5 41.5 13.0 9.1
ToyotaKirloskarMotor 18.7 10.7 20.5 40.2 20.8 7.8
TTMT 26.4 3.8 15.9 15.1 24.5 4.8
Domesticmarketshare(%)
Mahindra&Mahindra 40.8 42.4 47.2 55.2 52.5
ToyotaKirloskarMotor 19.8 19.7 17.0 19.7 20.0
TTMT 21.7 20.3 18.5 13.0 13.6
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Multipurposevehicles FY07 FY08 FY09 FY10 FY11 CAGR%(FY07FY11)
Totalsales
volumes
(000s) 84.4 101.9 107.8 151.9 215.8 15.0
Domesticsalesvolumes(000s) 83.1 100.9 106.6 150.3 213.5 15.1
Exportsalesvolumes(000s) 1.3 1.0 1.2 1.6 2.3 9.5
Totalsalesvolumegrowth(%) 25.1 20.7 5.8 40.9 42.1
Domesticsalesvolumegrowth(%) 25.2 21.4 5.7 40.9 42.1
Exportsalesvolumegrowth(%) 21.7 24.4 15.3 39.1 41.8
Exportsaspercentageoftotalsalesvolume(%) 1.6 1.0 1.1 1.1 1.1
Top3Players
Domesticsalesvolumes(000s)
MarutiSuzuki 83.1 89.7 77.9 101.3 160.6
TTMT 0.0 11.1 28.7 48.9 51.8
Mahindra&Mahindra 0.0 0.0 0.0 0.0 0.9
Domesticsalesvolumegrowth(%)
MarutiSuzuki 25.2 8.0 13.1 30.0 58.5 11.1
TTMT NM NM 157.4 70.7 5.8 NM
Mahindra&Mahindra NM NM NM NM NM NM
Domesticmarketshare(%)
MarutiSuzuki 100.0 89.0 73.1 67.4 75.2
TTMT 0.0 11.0 26.9 32.6 24.2
Mahindra&Mahindra 0.0 0.0 0.0 0.0 0.4
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AnalystCertification
Thefollowinganalyst(s) is(are)primarilyresponsible forthisreportand,certifies(y)thattheopinion(s)onthesubjectcompany(ies) and itssecurity(ies)andanyotherviewsor
forecastsexpressedhereinaccuratelyreflecttheirpersonalview(s).Theyfurthercertifythatnopartoftheircompensation was,isorwillbedirectlyorindirectlyrelatedtothe
specificrecommendation(s) orviewscontainedinthisresearchreport:SriRaghunandhanNL
Disclosures
MeaningofAvendusSecuritiesPrivateLimitedsequityresearchratings
Theratingrepresentstheexpectedchangeinthepriceofthestockoverahorizonof12months.
Buy:morethan+20% Add:+10%to+20% Hold: 10%to+10% Reduce: 10%to 20% Sell:lessthan 20%
Proportionofratingsineachcategoryandinvestmentbankingrelationships
AttheendofDecember2011 Buy Add Hold Reduce Sell NR Total
Proportionofratingsineachcategory 32% 24% 29% 7% 0% 7% 100%
Proportionofcompaniestowhommaterialinvestmentbankingserviceswereofferedduringtheprevious12months 0% 13% 5% 0% 0% 20% 6%
Analystdisclosures
None of theanalysts involved in thepreparation of this researchreportoramemberof his/herhousehold isan officer, director or supervisory board memberof any of the
company(ies)that
is/are
the
subject
of
this
research
report.
None
of
the
analysts
involved
in
the
preparation
of
this
research
report
or
members
of
his/her
household
hold
any
financialinterestinthesecuritiesofthecompany(ies) thatis/arethesubjectofthisresearchreport.Noneoftheanalystsinvolvedinthepreparationofthisresearchreporthave
receivedorpurchasedsharesofthesubjectcompanypriortothepublicofferingofthoseshares
DisclosuresonpotentialconflictsofinterestforAvendusSecuritiesPrivateLimitedand/oritsassociatecompanies(Avendus)asonFebruary21,2012
Asontheabovementioneddate,theshareholdings ofAvendusdoesnotexceed5%ofthetotal issuedsharecapitalofTataMotorsLimited(TTMT).Avendusdoesnotholdany
otherfinancialinterestinTTMTthatissignificantwithregardtotheresearchrecommendation. Asontheabovementioneddate,theshareholdings ofTTMTdoesnotexceed5%of
thetotalissuedsharecapitalofAvendus.Avendusisnotamarketmakerorliquidityproviderinthesecurities oftherelevantissuerorinanyrelatedderivatives.Avendushasnot
beenaleadmanagerorcoleadmanagerofapubliclydisclosedofferofsecuritiesofTTMTorinanyrelatedderivativesoverthepast12months.Overthepast12months,Avendus
hasnotbeenpartytoanagreementwithTTMTwithregardtotheprovisionofotherinvestmentbankingservicesthatdonotentailthedisclosure ofanyconfidential commercial
information. Avendusisnotpartytoanagreementwiththesubjectcompany(ies) ofthisresearchreportwithregardtotheproductionofthisresearchreport.
Sharepricehistoryandratingchanges
Add,23Feb12,303
130
190
250
310
Feb11 Apr11 Jun11 Jul11 Sep11 Nov11 Dec11 Feb12
TTMT(InitiatedonFeb23, 12) Rating,Date,TP(INR)
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India Equity Research TataMotors
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