>TATA MOTORS(UBS)

Q1FY10 – JLR volumes lumes have bottomed
􀂄 JLR volumes likely to increase going forward
JLR reported an operating margin of (10.3%) for Q1FY10 driven by continued
weak sales. JLR volumes were down 52%YoY and up 10% QoQ. While wholesale
volumes remained weak retail volumes are showing signs of stabalizing at a higher
level. With limited inventory in the channel (Rs 60bn), we believe JLR volumes
will reflect the retail volumes for closely going forward.
􀂄 Unexplained shifts in JLR cost structure, FX gains reduce overall loss
JLR reported EBITDA margin of -3% for Q1FY10, as raw material cost (as %age
of sales) increase 850bps over FY09 and other expenses declined 1080bps. This is
despite decline in raw material prices for JLR from this qtr. Mgmt. maintained
there is no reclassification of costs at JLR. JLR capitalized GBP 100mn of product
development and capex was GBP 50mn during the qtr. Profitability of other key
subsidiaries continued to remain weak. Cons. PAT of Rs -3.29bn was aided by gain
of Rs 3.2bn on sale of stake in Tata Steel and FX translation gains of Rs 3.34bn.
􀂄 Significant capital raising required, debt reduced marginally
Gross debt declined qoq by Rs 11bn to Rs 338.5bn despite increase of Rs 5bn in
vehicle finance book and Rs 2bn increase in cash. We believe this decrease is
partly driven by advance money collected for Nano booking. We see limited
likelihood of free cash flow generation given high capex and R&D expense both at
parent and JLR and significant interest burden.
􀂄 Valuation: Maintain Sell, PT Rs 140
We value Tata Motors on 5x EV/EBITDA (avg. of FY10E and FY11E).

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