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Motilal Oswal
Tata Motors (Neutral)
CMP: ₹127.95
Target: ₹146
Tata Motors FY19 annual report analysis highlighted a weak operating performance. EBITDA declined about 16 per cent y-o-y to ₹25,600 crore, despite a) continued capitalisation of product development expenditure by ₹16,900 crore (80 per cent of cash spent); and b) lower pension cost recognized in P&L (at ₹1,400 crore) than cash paid to the pension fund (₹2,400 crore). JLR’s underfunded pension liabilities increased from ₹4,000 crore in FY18 to ₹6,000 crore in FY19. Earnings continued to be impacted by recognition of derivative losses of ₹7,000 crore (FY18: ₹10,300 crore) on hedges, while unrealised hedge loss of ₹5,600 crore (FY18: loss of ₹3,600 crore) was outstanding in the hedge reserve.
A sustainable recovery in volumes in JLR, particularly in the profitable markets of China, along with the ongoing cost-cutting initiatives, is key to value-accretive growth and stock performance. This is particularly important due to the impending downcycle in the cash-cow India commercial vehicle business in FY21.
The stock trades at 13.3x/8.8x FY20/21E consolidated EPS. Maintain NEUTRAL with a target price of ₹146 (Mar’21E SOTP-based).
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