Analysts Corner: keep the “sale” on Tata Motors; fair value revised to Rs 155

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JLR’s retail volumes were down 9% year-on-year to 128,469 units in 3TFY21.

JLR’s retail volumes were down 9% year-over-year (year-over-year) in 3QFY21, due to lower volumes in all regions except China. While management has done a good job cutting costs and conserving liquidity, the volume outlook for JLR remains weak due to weak global growth and weak model launch pipeline. We keep the “ sale ” but revise the fair value to Rs 155 (from Rs 135 earlier), noting the cost reduction initiatives and the postponement to March 2023E (from December 2022E earlier).

JLR’s retail volumes were down 9% year-on-year to 128,469 units in 3TFY21. Jaguar volumes were down 21% year on year while Land Rover volumes were down just 5% year on year, driven by the success of the new Defender. Volumes in China increased 19% year-on-year to 32,668 units thanks to a strong recovery in Chinese regions. UK volumes were down 9% year-on-year in 3QFY21 amid concerns over Brexit and a second wave of Covid-19. The other markets continued to struggle against the drop in volumes in Europe (-16% year-on-year), North America (-17% year-on-year) and the rest of the world (-20% year-on-year) 3QFY21.

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In terms of models, the new Range Rover Defender continued its uptrend (+ 66% QoQ) at 3QFY21. Jaguar I-Pace volumes were up 69% year-on-year, driven by strong traction from the electric YoY variant, and XE volumes were up 31% year-on-year in 3QFY21. At 3QFY21, the all-electric mix stood at 6.1%, PHEV at 5.5% and MHEV at 41.4%. For CY2020, the share of the electric vehicle mix is ​​43.3%. We expect JLR volumes to increase by 2% CAGR on FY2020-23E, thanks to the recovery from FY2022E. We expect the EBITDA margin to improve to 12.8% in FY2023E from 8.7% in FY2020, driven by operating leverage benefits and £ 6bn in cost savings under of the Charge and Project Charge + projects. The company plans to save the remaining £ 0.7bn during 2HFY21E by focusing on reducing warranty costs, minimizing overheads and improving current portfolio returns by lowering the cost of materials.

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We also expect the company to generate FCFs over the next two quarters, driven by improved operational performance. However, we expect moderate volume growth over the medium term given the weak global economy and weak model pipeline in the electric segment.

We expect Tata Motors autonomous volumes to increase by 12% CAGR on FY2020-23E, driven by a strong recovery in the truck segment amid rising freight rates and improving utilization levels of the fleet and 15% CAGR by volume in the domestic PV segment. We estimate the heavy-duty truck demand segment to show a CAGR of 18% in fiscal year 2020-25E, led by replacement demand and the recovery in freight demand. We expect road freight demand to grow by 3% CAGR in fiscal year 2020-25E, due to increased government and private sector investment and increased interstate movement of goods and services. passengers due to strong growth in the FMCG, retail and pharmaceutical industries.

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