JLR will not compromise on product and technology investments – Tata MotorsMrunmayee Jogalekar
Update on the Indian Equity Market:
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Excerpts of an interview with Mr. PB Balaji, Group CFO, Tata Motors, aired on CNBC-TV18 on 7th December 2020
● Management has consciously called out that turning free cash flow positive is a key objective of the business.
● Both JLR and TML will be free cash flow positive in 2HFY21E. The India PV business will turn positive from FY23E. The management is confident of delivering on these targets.
● JLR turnover was well underway before the Covid-19 disruption. Due to Covid-19, JLR has accelerated plans that were already in place.
● Turnaround of JLR depends on 3 verticals: 1) Focus on how to use the products that have been launched to their maximum limit, 2) China geography turnaround, and 3) Cost and cash savings as part of the Charge+ program. As these 3 factors come together, JLR will turn free cash positive and that will ensure deleverage.
● Land Rover has been doing better than Jaguar. Land Rover also generates most of the profits currently. Turnaround and sustainability of cash flows of Jaguar is part of the overall medium-long term JLR turnaround plan.
● On the Indian PV side, the New forever range launched by TML in February 2020 has been successful in generating demand traction. Overall, the industry is seeing a demand resurgence in PV led to a need for a safe commute. Post-Diwali this year there hasn’t been a serious decline in sales which is what happens normally. Order books are at all-time highs.
● The Indian CV business is also seeing sequential recovery, although slower than PV. Recovery came earlier in SCVs and ILCVs.
● MHCVs are also doing better in the last 1.5 months. Financing has opened up for MHCVs which is helping sales. With the economy slowly starting, there is a pick-up in cargo movements.
● One segment that is not performing well at all is the Passenger carriers (buses) segment due to schools being shut and most offices working from home.
● JLR has slashed FY21E capex plans to GBP 2.5 bn. But JLR will not compromise on product and technology investments. The capex cut is in tune reflecting the decline in the demand scenario. Some products whose business case was not strong enough have been put on pause.
● Every JLR product will have an electrification option by early FY22E. The electrification journey is well underway and is not stopping here.
● Additionally, Tata Motors is looking for partnerships – be in JLR or TML – to ensure capital productivity.
● JLR margins went up to 11.1% in 2QFY21 on the back of Charge+ cash savings. Management expects further improvement in profitability and cash flows in 2HFY21E. As volumes increase, initiatives made on the costs, especially material costs, will get reflected more.
Consensus Estimate (Source: market screener website)
● The closing price of TATAMOTORS was ₹ 182 as of 8-December-2020. It traded at 18 x/ 9x the consensus EPS estimate of ₹ 10.4/19.9 for FY22E/ FY23E respectively.
● The consensus target price of ₹ 148/- implies a PE multiple of 8x on FY23E EPS of ₹19.9/-.
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