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09 Dec

JLR will not compromise on product and technology investments – Tata Motors

Update on the Indian Equity Market:

On Tuesday, Nifty closed 0.3% higher at 13,393. Within NIFTY50, ULTRACEMCO (+3.1%), TCS (+2.1%), and RELIANCE (+1.8%) were the top gainers, while HINDALCO (-2.3%), SUNPHARMA (-2.2%), and COALINDIA (-1.8%) were the top losing stocks. Among the sectoral indices, PSU BANK (+7.1%), REALTY (+0.8%) and IT (+0.8%) were the top gainers while METAL (-1.2%), PHARMA (-1.2%), and MEDIA (-0.9%) were the top losing sectors.

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/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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28 Feb

Volumes impacted due to Coronavirus: V. Kalyana Rama, CONCOR

Update on the Indian Equity Market:

On Thursday, investors continued rushing to safer assets on fears that the coronavirus outbreak is fast developing into a pandemic.

The broad market index, NIFTY50 ended the day marginally lower at 11,633. The two sectoral gainers were Pharma (+0.6%), and FMCG (+0.1%). Realty (-2.4%), Media (-2.4%), and PSU Bank (-2.3%) were the top losing sectors. The top gaining stocks were Sun Pharma (+3.6%), Britannia (+1.9%), and Titan (+1.9%) while Wipro (-3.5%), ONCG (-3.0%), and JSW Steel (-3.0%) led the losers.

Volumes impacted due to Corona Virus: V. Kalyana Rama, CONCOR

Excerpts from an interview with Mr V. Kalyana Rama, Chairman and MD, CONCOR published in Mint on 26th February 2020:

  • The last quarter witnessed a drop in the volumes of the company as the demand did not pick up. Even now the business is subdued; the volumes are impacted because of the coronavirus.
  • They have guided for a flat FY20 in the last quarter looking at the volumes. If the impact of coronavirus is worse than already considered, there might be a negative side.
  • There has been a provision for the Services Export from India Scheme (SEIS) income close to ₹ 861 crores, which was disallowed by the Directorate General of Foreign Trade (DGFT). CONCOR is contesting the disallowance of those claims. Disallowance leads to the formation of committee of secretaries and approvals from the government. The process is a work-in-progress and they are waiting for the outcome.
  • The government had announced it is willing to divest CONCOR with management control, transferring 30.8% share.
  • Despite the government announcement, business is going on as usual on 41 terminals on lease from the railways. There is absolutely no disruption on the business.
  • CONCOR is continuing with rail freight price policy announced in April 2019, for the current financial year. Any price change will be only in effect from FY21 and the market will be duly notified of it. As per the previous three-quarter numbers, there was a positive effect on the top line and the bottom line.
  • The coastal shipping business made some losses in the first nine months but they are not too worried about it. They are keeping a timeframe of three years to stabilize and turnover this business.

Consensus Estimate: (Source: market screener website)

  • The closing price of CONCOR was ₹ 510/- as of 27-February-2020.  The consensus earnings estimates are not available.
  • The company declared earnings of ₹ 2.9 per share for the quarter ending December 31 2019, versus ₹ 4.5 declared for the quarter ending December 31, 2018. It declared earnings of ₹ 19.95 per share for the year ended March 31, 2019.
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10 Feb

Reducing non-core debt to pare debt: Tata Motors

Update on the Indian Equity Market:

After a week-long rally, investors booked profits which led to a fall of 52 points in Nifty to close at 12,087. This follows the weak Asian markets following the rising death toll from a virus spreading from China. Apart from result season, there was no major catalyst to move the markets on Friday. Within the sectoral indices, Media (1.7%), Pharma (0.6%) and IT (0.5%) closed the day higher while REALTY (-1.8%), AUTO (-1.0%) and PVT BANKS (-0.5%) were the highest losers. Among the index stocks, ZEEL (5.5%), NTPC (3.2%) and COALINDIA (2.8%) led the gainers whereas EICHERMOT (-3.1%), TATAMOTORS (-3.0%) and INDUSINDBK (-2.7%) brought the index lower.

Reducing non-core debt to pare debt: Tata Motors

Excerpts from an interview with Mr Guenter Butschek, MD & CEO – Tata Motors published in Livemint on 7th February 2020.

  • Mr Butschek said that the company has invested sufficiently in its product library that includes common vehicle architectures, powertrains, transmissions, and other shared technologies to reduce overall product development cost.
  • He is confident that in the coming two years, the company will see strong growth as far as modularity is concerned across commercial and passenger vehicles. He said that the company has done homework on its turnaround plans, investing in new technology platforms such as CESS (connected, electric, shared and safe mobility) and tapping into the Tata Group companies’ strengths to build an electric vehicle (EV) ecosystem.
  • Referring to the company’s efforts to strengthen its financials, he said Tata Motors has turned cash accretive despite the collapse of the medium and heavy commercial vehicle (MHCV) segment, which contributes 47% of total commercial vehicle revenue that accounts for 65% of total domestic revenue.
  • The product portfolio of company is much better than what it was when the economic slowdown began two years ago. He is confident that once the economy revives, the significantly upgraded products would do much better in terms of cost-based contribution to company’s margin base.
  • Butschek said that customers would take a while to absorb the higher cost of purchases under BS-VI emission norms, which would entail a product price increase of 10-15%.
  • The company had ₹ 233,365 mn worth of debt in its India business as of 30th September 2019. The consolidated debt including Jaguar Land Rover (JLR) stood at ₹954,650 mn. He said that the company is planning to reduce non-core assets to reduce the debt.
  • The company is focusing on reducing costs, including material costs and working to enhance productivity.
  • As part of its turnaround plan, Tata Motors plans to launch 12-14 passenger vehicles over the next three to five years, besides at least four new electric vehicles over the next 18-24 months.

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Motors was ₹5/- as of 07-February-2020. It traded at 109x/ 11x/ 7x the consensus earnings estimate of ₹1.6/ 15.4/ 24.7 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price of ₹ 201 /- implies a PE multiple of 8x on FY22E EPS of ₹ 24.7 /-
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