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Tata Motors Ltd>
  • CMP : 547.5 Chg : 11.60 (2.16%)
  • Target : 530.0 (26.19%)
  • Target Period : 12-18 Month

30 Jan 2023

Healthy performance, profitable growth lies ahead…

About The Stock

Tata Motors (TML) is an auto OEM from the house of Tata’s, operating in domestic (PV, CV) as well as global markets (Jaguar Land Rover i.e. JLR)

  • JLR is a luxury car brand which includes two prominent names i.e. Jaguar (models like I-pace, etc.) & Land Rover (models like Defender, Evoque, etc.)
  • FY22 consolidated sales mix– JLR ~67%, India CV ~19%, India PV ~11%.

TML reported robust Q3FY23 results

  • Consolidated total operating income was up 11.2% QoQ at ₹88,489 crore
  • EBITDA margins were at 13.9%, up 290 bps QoQ
  • Consolidated profit after tax stood at ₹2,958 crore (includes forex gain)
  • EBITDA margins in Q3FY23: JLR: 11.9%, Indian CV: 8.4% & India PV: 6.9%    
What should Investors do?

TML’s stock price has grown 1.7% over past 5 years (~₹383 levels in Jan 2020), in line with the broader Nifty Auto index

  • We upgrade the stock from Hold to BUY due to JLRs progressive volume recovery, healthy positive EBIT margin profile and FCF visibility for FY24E, with fundamental drivers for healthy growth in domestic operations.
Target Price and Valuation

Introducing FY25E, however continuing to value it on FY24E we arrive at ₹ 530 as the target price for TML on SOTP basis (10x, 2.5x FY24E EV/EBITDA on India, JLR; ₹158 value to Indian EV business; previous TP ₹465).

Key Triggers for future price performance
  • We expect healthy 18.2% revenue CAGR over FY22-25E driven by 13.8% total volume CAGR amid healthy order book at JLR (2.15 lakh units).
  • Demonstrated capability in new technologies showcasing entire range of CVs, including fuel cells, BEVs, & hydrogen-powered vehicles at Auto Expo.
  • Limiting discount in CV space amidst aspiration for double-digit margins.
  • Dominant position in domestic Electric-PV space with Nexon EV as its most popular product with Harrier EV and Sierra EV slated for launch in CY25, coupled with the debut of Altroz & Punch CNG (twin cylinder) in Auto Expo. JLR also set to embrace the EV trend with Jaguar going all-electric by 2025.
  • Intent to go net debt free (revised timeline awaited) though fresh equity raise in EV-PV space and partial sale of stake in Tata Technologies though IPO.
Alternate Stock Ideas

Apart from TML, in our OEM coverage we also like M&M.

  • Focused on prudent capital allocation, UV differentiation & EV proactiveness
  • BUY with target price of ₹1,590

Key Financial Summary

Key Financials FY20 FY21 FY22 5 year CAGR (FY17-22) FY23E FY24E FY25E 3 year CAGR (FY22-25E)
Net Sales 261,068.0 249,794.8 278,453.6 0.6 333,559.7 410,554.6 460,343.6 18.2
EBITDA 23,914.1 35,782.0 34,022.7 0.6 39,152.8 54,493.5 63,057.7 22.8
EBITDA Margins (%) 9.2 14.3 12.2 - 11.7 13.3 13.7 -
Net Profit -11,975.4 -13,451.3 -11,441.5
EPS (₹) -33.3 -35.1 -29.9 - -3.1 24.3 35.8 -
P/E -12.6 -12.0 -14.1 - -137.1 17.3 11.7 -
RoNW (%) -18.7 -23.8 -23.5 - -2.5 16.3 19.4 -
RoCE (%) 1.3 6.3 4.8 - 7.9 15.1 18.6 -
Source: Company, ICICI Direct Research

Key takeaways of the recent quarter & Concall highlights

Q3FY23 Results

  • Consolidated total operating income for the quarter came in at |88,489 crore, up 11.2% QoQ. Reported EBITDA for Q3FY23 stood at | 12,280 crore with corresponding EBITDA margins at 13.9%, up 290 bps QoQ.
  • JLR wholesales at 92,345 units were up 2.7% QoQ with revenues were up 13.2% QoQ at £6 billion. Margins at 11.9%.
  • Net revenues for Indian operations (CV+PV) came in at ₹ 28,557 crore amid ~6.3% sequential decline in total volumes to ~2.3 lakh units.
  • CV business reported EBITDA margins of 8.4% (up 340 bps QoQ) while the same in PV business stood at 6.9% (up 150 bps QoQ).



Q3FY23 Earnings Conference Call highlights

  • Company’s commentary on demand outlook remained cautiously optimistic on the demand situation despite global uncertainties with order book of 2.15 lakh units for JLR as of Q3FY23 end vs 2.05 lakh units as of Q2FY23. Company received 95k new orders for Q3FY23 amidst 85k deliveries.
  • Management informed that wholesales in China remained impacted due to lockdown during the quarter. It however retained its guidance for the full year with Positive EBIT margin and free cashflow expected in Q4FY23 on wholesales of 80,000+ units (excl. China JV). Further strong performance in Q3FY23 was due to higher wholesales, stronger mix, pricing and forex gains. Going forward management expects Q4 to be better than Q3FY23.
  • JLR had 67% electrified powertrain mix in Q3FY23 (BEV & PHEV 11%, 56% MHEV) vs 65% in Q2FY23.
  • Refocus program has achieved £850m cash and cost improvements for YTD FY23 & remains on track to achieve £1b+ for FY23.
  • JLR generated positive free cashflow of £490m in the quarter with breakeven volumes at 280k (annualised). Going forward breakeven is expected at 300k units for FY23.
  • Management remains committed towards achieving >80k wholesales (excluding- China JV) for JLR & ~310k units for FY23, & deliver positive EBIT margin and breakeven free cash flow in FY23 despite muted H1FY23.
  • Company has agreements in place with critical suppliers across high risk chips which provide greater visibility over near term supply.
  • In the India CV space,        retail market share stood at 42.1% in YTDFY23 vs ~43.2% in H1FY23.
  • CNG penetration in I&LCV was at ~19% for YTDFY23 vs. ~40% in FY22. Muted CNG sales is attributable to unprecedented rise in CNG prices.
  • Company informed about TML Smart mobility solution Ltd crossing ~|260 crore of revenue. Further company signed definitive agreement with Delhi Transport Corporation, Bengaluru Metropolitan Transport Corporation and Jammu Srinagar for deployment of 1500, 921 and 200 e-buses respectively.

    Company has grown spares business by 38% YoY.

    E-dukaan, online marketplace for spares grew by 164% YTD Dec’22 YoY.

    Powertrain mix for PV was 66% petrol, 17% diesel, 8% EV, 9% CNG. EV market share stood at ~85% for YTDFY23 with total PV market share at 14.1% for YTDFY23.

    Company informed about Tranche 2 of US$ 1 billion equity raise i.e. ₹3,750 crore to be received by January end from TPG.

    Net automotive debt stood at ~|57,500 crore in YTDFY23 vs ~|59,900 crore in H1FY23.

    Company expects M&HCV; ILCV; LCV to grow by 45%; 15%; 20% YoY respectively in FY23E.

    Company informed about recent price cut taken in EV space (Nexon) after careful consideration & to provide better value proposition to customers, Also company has started reducing discounts in CV space from September, 2022 & has contributed to margins.



I/We, Shashank Kanodia, CFA, MBA (Capital Markets), and Raghvendra Goyal, CA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

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