Tata Motors Research Reports By Motilal Oswal and HDFC Sec

Motilal Oswal:

China uncertainty, but transitory issues receding
JLR’s product portfolio expansion to drive outperformance

-JLR’s transitory issues, which impacted volumes by 5-8% since 3QFY15, are expected to recede from 3QFY16 and fully reflect in 2QFY16 performance.
– Despite growth normalizing in luxury cars, China is expected to outperform other key markets with 8-10% CAGR growth. JLR would outperform in China due to a) strong product pipeline, b) strength in the fast growing SUV segment, and c) network expansion.
– JLR’s has several structural levers to dilute the impact of expected normalization of China profitability.
– Earnings downgrade cycle is nearing end, as transitory issues recede. Valuations attractive, despite normalizing China margins. Buy with a TP of ~INR488.

HDFC Sec:

Tata Motors’ stock price has cracked by ~40% on account of China demand concerns. We believe the stock has more than adequately priced in these concerns. However, it is ignoring JLR’s strong new product cycle. We have cut our consol earnings estimates by 14%/7% for FY16/FY17, as we lower our volume and EBITDA margin estimates for JLR, based on current demand and pricing headwinds in China. We have also lowered our TP to Rs 445 as we assign 4x EV/EBITDA (earlier 4.5x) on FY17E for JLR business given its muted earnings momentum in the medium term. We highlight that even if JLR’s China EBITDA/vehicle premium diminishes to ROW levels, we see ~30% upside to current levels. Maintain BUY.

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