Tata Motors Q4FY22 integrated Ebitda has come in line with our expectations. The near term could create some challenges for the company; However, in view of the recent stock price correction, we believe that Tata Motors is the best bet for the recovery of the automotive cycle worldwide. Also, strong momentum in domestic ICE and EV PV business, balance sheet abolition and growth in domestic CV business will lead to strong revenue growth for the company. Bought.
JLR Ebitda 6% less than our estimate
Ebitda reported GBP599 mn (-40% yoy) on JLR Q4FY22, 6% lower than our estimate due to lower than initially expected ASP. The decline in ASP can be attributed to (i) an inferior model mix (lower mix of Range Rover family) and (ii) lower geographic mix (lower mix of China). The company reported an EBITDA margin of 12.6%, despite a mix of weaker models and tighter controls on costs despite inflation. The near term could be challenging due to China’s lockdown and supply-chain constraints; However, we expect the company to overcome the crisis due to its improved performance over the past few years. As the supply chain improves, we expect Ebitda margin to increase by an inch leading to (i) a strong order backlog due to gradual improvement in the supply chain and new launches and (ii) operating leverage facility initiative by re-focusing on cost reduction initiatives).
Domestic CV business performance has exceeded our expectations
Domestic CV business Ebitda margin increased 400 bps to qoq 6.4% (120 bps higher than we expected mainly due to high ASP). However, the Ebitda margin of domestic PV business increased 270 bps qoq 6.9% (110 bps lower than our estimate) in FY22 Q4. The company remains optimistic about PV and CV segment volume recovery; However, inflationary pressures and supply-chain constraints are areas of concern.
Tune in to our FY2023-24E EPS
We have corrected our FY2023-24E integrated EPS estimates. While the near term may be challenging for JLR, we believe the company has done well in improving the structural profitability of the business over the past few years. Once the chip deficit has been addressed, we believe JLR is in a good position to benefit from a worldwide automated cycle recovery. Also, we believe that the domestic CV cycle recovery will continue as freight rates will continue to strengthen and fleet utilization levels will improve. With the company’s successful new launches in the domestic ICE PV segment, the growing consumer demand for EV vehicles has become a bright spot for the company. Following the recent correction of the stock, the risk-reward is favorable and we believe the worst price is also in the CMP. Maintain purchasing; Unchanged FV at Rs. 470.