Monday, June 18, 2012


Action: Downgrade to Neutral; TP reduced to INR251
JLR’s 4QFY12 EBITDA declined by 240bps q-q to 14.6%, well below our estimate and consensus of 18-19%. JLR’s current margins are in line with those of global peers and management’s guidance. We estimate the EBITDA margin will stabilise around current levels of 14-15% over the next two years, as upside from an improved China mix is likely to be balanced by a weaker product mix and higher marketing expenses. We
thus reduce our FY13F/FY14F margins from 17.7%/18% to 14.1%/14.5%.

We now expect a 5% decline for domestic MHCVs in FY13F, compared with 0% growth previously. The key argument for our Buy rating so far was our above-consensus earnings estimates, which is no longer the case. Even though our estimates are below consensus, we believe that the recent stock price correction factors this in. Thus, the risk-reward appears balanced, in our view.

Catalysts: Success of new models (positive); global slowdown, growth moderation in China and domestic truck slowdown (negative)

 The success of new launches such as the Jaguar XF-Sportbrake and C-X16 could present upside risks to our estimates.

 Slowdown in developed markets such as the United States and in China could be downside risks. Weaker domestic truck could also be a downside risk.

Valuation: SOTP-based target price cut to INR251
We have reduced our valuation for JLR to INR172 (from INR248) on lowering our margin estimate to 14.1% for FY13 (from 17.7%). We value the standalone business at INR56.5 (7x FY14F EV/EBITDA).

To read report in detail: TATA MOTORS