Stock Sip: Tata Motors

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Bleeding Machine(i.e. Jaguar And Land Rover ) started showing margins to drive Tata Motors transformation and debt reduction.

sip stock: tata motor

Project Charge+ of JLR delivers margins, drives debt reduction.

Jaguar Land Rover (JLR)’s FY21 Annual Report focuses on the company’s next phase of growth to become an electronic mobility company. The company has outlined its strategy for the transformation to electric mobility and to focus more on profitability over volumes. Here are the key points from the Annual Report:

  • As per the message from CEO Thierry Bolloré, the ‘Reimagine’ strategy would transform the business and its distinct brands. It would create a knowledge-sharing collaborative ecosystem with the very best partners in the global industry for a massive leap in clean energy, software, and digitalization. Its goal is to deliver double-digit EBIT margins and be among the world’s most profitable luxury manufacturers.
  • Both the Jaguar and Land Rover brands would undergo transformation by electrification – six new all-electric Land Rover models would be introduced in the next five years and Jaguar would be completely reimagined as a purely electric brand from 2025. JLR aims to have full-BEV powertrains accounting for around 60% of the total JLR sales by 2030 and 100% of volumes by 2036.
  • By the end of the decade, it would migrate from six different architectures to just three central to its new architecture strategy, in line with the accelerated shift to electrification.
  • Both the JLR and India businesses are on the path to cyclical recovery. This, coupled with restructuring initiatives, would drive further debt reduction.

Important Messages from CEO of JLR

  • JLR would focus on value creation through a profit-over-volume approach. Its goal is to deliver double-digit EBIT margins and be one of the world’s most profitable luxury manufacturers.
  • Both the Jaguar and Land Rover brands would undergo transformation by electrification – six new all-electric Land Rover models would be introduced in the next five years and Jaguar would be completely reimagined as a purely electric brand from 2025. ( By this time the EV space will be mature enough ).
  • The company aims to position Jaguar as an aspirational and technologically engaging brand, thus carving a niche in the market. All of the new Jaguars due to be launched from 2025 would be built on a separate architecture. The company is in consultation with potential partners for the same.
  • Additionally, JLR would implement the new Electric Modular Architecture (EMA). This was created with the aim to drive simplicity via native-BEV and “Ultimately, our will is to become the creator of the world’s most desirable luxury vehicles and products, for the most discerning of customers.The architecture would also accommodate small capacity, high-performance electrified ICE – true electric-first flexibility, enabling the company to offer BEV, PHEV, and MHEV vehicles with exceptional range and performance

Some Important Takeaways

  • The present global supply shortage of semi-conductors would impact production and sales volumes. These are expected to be lower than initially planned in the 1HFY22. However, supply constraints would ease in 2HFY22 as new capacity comes online. As a result, most of the lost production would be recovered once the supply of semiconductors improves.
  • JLR is seeing greater collaboration and synergies within the Tata Group in areas of clean energy, connected services, data, and software development. It has frictionless access to some of the world’s leading players in technology, software, and clean energy. It aims to create next-generation-based electrical vehicle architecture – EVA continuum – developed along with Tata Consultancy Services

Our View

  • Over the last three years, JLR had suffered from an adverse product mix (growth led by Jaguar), an adverse market mix (decline in China contribution), and increased capex, resulting in negative free cash flows over FY18–20. JLR has been focused on cutting capex and cost, the benefits of which have now started to reflect. Despite the impact of COVID-19, we should see the mix normalizing – with recovery in LR and China.
  • JLR has several levers, both cyclical and structural, in the form of (a) cost-cutting initiatives on both variable and fixed costs, (b) mix improvement (growth in LR and China), (c) operating leverage, and (d) cost savings on the modular platform (on the full rollout of the modular strategy). The convergence of the multiple factors stated above could drive recovery in EBIT margins and leave scope for positive surprises on profitability.
  • India business recovery has been severely impacted by the second COVID wave. Although Tata Motor’s India CV business is on a strong footing, the company may see some slow down in M&HCV volume recovery for now. On the other hand, Tata Motor’s refreshed product portfolio has aided rapid recovery in the PV business and market share gains; it is back on track to achieve FCF breakeven by FY23.
  • Tata Motor’s PV business is seeing some traction with its EV launch which is helping Tata Motor in gaining market shares and some revolutionary models (i.e.Nexon and Harrier) in Tata Motors’s product portfolio.
  • We believe Tata Motors Nexon EV would help TM in first mover advantage in EV space and would lead to gaining market share and improving the balance sheet.

Stock Snapshot

Market Cap

₹ 125,498 Cr.

Current Price

₹ 353

Book Value

₹ 166

High / Low

₹ 361 / 91.6

Our Advice We have suggested our investor for an SIP in Tata Motor DVR ( when price were 120-125 i.e. CMP 165 ) for a period of minimum 36 months for a magnifying returns. And we reiterate our view with more strong conviction in Tata Motor.

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