Reiterating buy on Tata Motor DVR tgt Rs 240/-

The third-quarter earnings of Tata Motors were way past analysts’ estimates. An exceptional income in the local standalone business as well as a stellar performance of subsidiary Jaguar Land Rover  are what made the quarter a special one for Tata Motors.

Consolidated revenue for the firm stood at Rs 63,877, rising 38% y-o-y from Rs 46,090 crore (Rs 62,000 crore expected). Operating profit came in at Rs 9,948 crore versus Rs 5,657 crore( Rs 8,700crore expected) in the year-ago quarter (a jump of 75%) while net profit surged 195%, from Rs 1,627 crore to Rs 4,805 crore.

The higher profits in the domestic business came in due to an exceptional income of Rs 1,948 crore accruing to the local business, which came from a sale of investments in foreign subsidiaries.

In the standalone business, revenue fell 27 percent year-on-year, from Rs 10,630 crore to Rs 7,769 crore while net profit stood at Rs 1,251 crore versus a loss of Rs 458 crore. Tata Motors’ domestic business has witnessed an intense slowdown as sales of its passenger cars came off in the face of high competition and its own line-up of cars being perceived as dated.

JLR numbers beat in contrast, quarterly profits for JLR stood at 619 million pounds on revenues of 5.33 billion pounds, higher than analysts’ consensus estimates of 433 million pounds and 5.22 billion pounds, respectively. Operating profit for the automaker stood at 955 million pounds, translating into margins of 17.9 percent. The street was looking for EBITDA of 840 million and operating margin at 16 percent. The company management said JLR’s margins  increased due to an improvement in its product mix — the company’s new Land Rover models such as the Range Rover Evoque and Jaguar’s F-Type have met with success — and higher contributions from high-growth markets such as China.  They have a line-up of 30 models and upgrades in the next 5 years which always bodes well for an auto company especially in an expanding international market.

The margins for the JLR business are much better than expected and look sustainable.  Considering that volume of 15-20% for JLR are likely to continue and that they are getting into newer markets Tata Motors continues to be a BUY.

The recent correction means that Tata Motors DVR is once again at price at which it looks attractive.  BUY with a target of Rs 240/-





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