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Motilal Oswal
Tata Motors (Buy)
CMP: ₹161
Target: ₹195
Key takeaways: a) JLR has endured a turbulent operating environment over the last two years, led by a troika of adverse macro, product mix and market mix. Some of the aforementioned challenges, particularly on product/market mix, are likely to ease based on product pipeline visibility and initiatives undertaken by JLR in China.
b) JLR’s product pipeline is dominated by LR, with four of the five new product launches over the next 2-3 years coming from the LR brand. LR’s contribution is already improving since 2QFY20.
c) In China, JLR has been focused on a) reducing inventory (now at lowest levels since 2017); b) improving dealer profitability and (c) brand-led pull strategy. JLR has been outperforming its peers in China since July 2019.
d) JLR’s cost-cutting initiatives have started reflecting in P&L, with GBP 0.5 billion of the targeted GBP 1 billion of cost savings achieved till September 2019 and the balance GBP 0.5 billion on track to be achieved in 2HFY20. On the investment side, it has cut capex and working capital by GBP 1.7 billion till September 2019.
e) With inventory under control and signs of green shoots, the worst of the CV cycle appears to be behind, although the recovery would be gradual.
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