>TATA MOTORS: Rising LCV and car volumes in India (CLSA)

JLR’s volumes have continued to surprise on the upside with Feb and Mar volumes coming in 5-16% above estimates boosted by strong Evoque demand. Rising proportion of China in volumes, operating leverage benefits and stable currencies have also improved margin outlook for JLR. In India, LCV and car volumes have improved in 4Q and profit outlook for India business is also improving. We upgrade FY13-14 EPS by 16-18% factoring in higher volumes in both JLR and India and anticipate upgrades by street in weeks ahead. We upgrade Tata Motors from O-PF to BUY with a TP of Rs370.


■  JLR’s volumes continue to surprise positively
JLR’s monthly global sales improved further in March with volumes at 36.5K units rising 51% YoY and 16% above estimates. This is the second month in a row that volumes have beaten our estimates handsomely. Evoque sales seem to have stabilized at the 10K level and demand outlook for the vehicle remains robust. The recent addition of a third shift at the Halewood plant has effectively increased JLR’s total annual capacity to 390-400K units – enough for FY13 and debottlenecking measures are being planned to take the capacity further up by FY14. Industry premium vehicle demand remains strong as evidenced by the monthly sales of JLR’s peers. More important, China sales of the industry were also strong over Feb and Mar, which should allay concerns of slowing China demand. We upgrade FY13/14 JLR volumes by 7% to 391K/422K units.


■  Improving margin outlook at JLR as well
Operating leverage benefits from higher volumes are fairly meaningful for JLR. Share of China in volumes has improved from 17% in 3Q to 19% in 4Q and should improve further in FY13. The principal currencies relevant to JLR’s margins have been stable from 3Q to 4Q. This has improved our outlook for JLR’s margins and we now build in 18.6% EBITDA margins over FY13-14 (~17.5% previously).


■  Rising LCV and car volumes in India
India LCV volumes have improved substantially in 2HFY12 and we expect strong growth in FY13 backed by higher capacity at the Pantnagar and Dharwad plants. The launch of a new platform for non-Ace LCVs will also boost volumes in FY13. India car volumes (incl Nano) have picked up in 2H. However, outlook for trucks remains subdued with industry growth slowing down to -4% in Mar-12.We upgrade Tata’s India volumes by 9-10% factoring in higher LCV/car volumes.


■ Upgrading FY13-14 EPS by 16-18%; upgrade from O-PF to BUY
We now build in JLR’s capex at £2bn per year (£1.5bn before). Our estimates are 12-14% above consensus and we anticipate EPS upgrades by the street in coming weeks. A strong response to the new Range Rover platform that will be launched by end-CY12 could drive further upgrades to FY14 EPS. Upgrade to BUY.


RISH TRADER