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Tata Motors 3QFY2012 performance highlights and results update

Contributed by Angel Broking

Stellar show at JLR drives overall performance: Tata Motors (TTMT) reported an extremely strong set of results, driven by stellar performance at JLR. The company’s top line grew by robust 44% yoy (25% qoq), led by 41.5% yoy (28.6% qoq) growth in JLR sales, which were driven by a 36.7% yoy (26.9% qoq) jump in volumes and 3.1% yoy (0.8% qoq) improvement in net average realization. The company’s operating margin surprised positively and stood at 15.1% on account of better-than-expected performance at JLR (EBITDA margin at 18.2%), which benefitted from superior product and geography mix, favorable forex and higher operating leverage. As a result, net profit increased by strong 40.5% yoy (81.4% qoq) to Rs.3,406cr.

Standalone performance under pressure: TTMT posted disappointing standalone results on account of unfavorable product mix, higher marketing spends in the passenger vehicle (PV) business and raw-material cost pressures. The top line reported healthy 15.8% yoy (3% qoq) growth, driven by 21.5% yoy (10% qoq) growth in volumes. Net average realization, however, declined by 4.8% yoy (6.4% qoq) due to higher proportion of PVs in the total volume mix. Operating margin continued to be under stress and declined by 376bp yoy to 6.4%, led by higher marketing spends and commodity cost pressures. Hence, net profit declined by 57.6% yoy to Rs.174cr.

Outlook and valuation: We have revised our consolidated earnings estimates upwards by 19.5%/32.4% for FY2012/13 on account of better-than-expected JLR performance during the quarter. We broadly retain our standalone earnings estimates and increase our JLR estimates over FY2012/13, driven by the increase in our volume and EBITDA margin estimates. We have increased JLR volume estimates by ~12% for FY2013 and margin estimates for JLR by ~100bp in FY2013. At Rs.286, the stock is trading at 7.4x FY2013E earnings. We maintain Accumulate on the stock with an SOTP target price of Rs.308.