Societe Generale raises Tata Motors price target to Rs616 (83% Upside!!!)
Update We are increasing our FY17e/18e EPS forecasts by 6%/17% and target price for Tata Motors by 7% to reflect the better than the expected success of the Jaguar XE. However we are reducing our EPS forecast for FY16e by 7% to reflect the negative impact
of the Tianjin blast among other short term negative factors.
SG view We recommend investors buy Tata Motors shares for the following reasons:
1) Jaguar volumes to triple: We expect Jaguar shipments to all but triple over the next two years. After the launch of the Jaguar XE, Jaguar increased its market share in UK/Europe premium vehicles market from 0.86% in July 2014 to 1.49% in July 2015
despite the negative headwinds of the phase-out of the current Jaguar XF and XJ models. As the Jaguar XE is rolled out beyond the UK and Europe, we expect to see a significant increase in Jaguar sales volumes.
2) Land Rover performance better than it appears:
Land Rover shipments were +1.4% and -6.5% yoy in June 2015 and July 2015, respectively. However, this ‘anaemic’ performance was a result of several one-off issues, including problems with the Evoque for the China JV, the limited geographic distribution of
the Discovery Sport with the Ingenium engine, and issues with the supply of Range Rover and Range Rover Sport seats. But despite all this, Land Rover managed to increase its market share in UK/Europe from 3.94% in June 2014 to 4.65% in June 2015 (we are
ignoring the decline in July as it was caused by the seat supply issue mentioned above). We think that as Land Rover launches the Evoque facelift (September 2015) and Discovery Sport with Ingenium engine worldwide (over the next 6 months), the market share gains seen in Europe will be replicated worldwide.
3) Macro concerns overhyped: We explain in this report why we think macroeconomic and margin pressure concerns are overhyped for Tata Motors.
How we value the stock We are increasing our NPV-based TP to INR616 (was INR575) to reflect higher earnings forecasts. We use a nominal WACC of 12.0% and model cash flows until 2025e with 6% terminal growth. Downside risks to TP: Weaker than expected
success of new model launches, worse than expected global (especially Chinese) economic slowdown.
Update We are increasing our FY17e/18e EPS forecasts by 6%/17% and target price for Tata Motors by 7% to reflect the better than the expected success of the Jaguar XE. However we are reducing our EPS forecast for FY16e by 7% to reflect the negative impact
of the Tianjin blast among other short term negative factors.
SG view We recommend investors buy Tata Motors shares for the following reasons:
1) Jaguar volumes to triple: We expect Jaguar shipments to all but triple over the next two years. After the launch of the Jaguar XE, Jaguar increased its market share in UK/Europe premium vehicles market from 0.86% in July 2014 to 1.49% in July 2015
despite the negative headwinds of the phase-out of the current Jaguar XF and XJ models. As the Jaguar XE is rolled out beyond the UK and Europe, we expect to see a significant increase in Jaguar sales volumes.
2) Land Rover performance better than it appears:
Land Rover shipments were +1.4% and -6.5% yoy in June 2015 and July 2015, respectively. However, this ‘anaemic’ performance was a result of several one-off issues, including problems with the Evoque for the China JV, the limited geographic distribution of
the Discovery Sport with the Ingenium engine, and issues with the supply of Range Rover and Range Rover Sport seats. But despite all this, Land Rover managed to increase its market share in UK/Europe from 3.94% in June 2014 to 4.65% in June 2015 (we are
ignoring the decline in July as it was caused by the seat supply issue mentioned above). We think that as Land Rover launches the Evoque facelift (September 2015) and Discovery Sport with Ingenium engine worldwide (over the next 6 months), the market share gains seen in Europe will be replicated worldwide.
3) Macro concerns overhyped: We explain in this report why we think macroeconomic and margin pressure concerns are overhyped for Tata Motors.
How we value the stock We are increasing our NPV-based TP to INR616 (was INR575) to reflect higher earnings forecasts. We use a nominal WACC of 12.0% and model cash flows until 2025e with 6% terminal growth. Downside risks to TP: Weaker than expected
success of new model launches, worse than expected global (especially Chinese) economic slowdown.
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