Key takeaway: An enhanced approach and cyclical recovery really should drive a powerful turnaround in Tata’s India small business. Tata’s marketplace share losses in trucks are behind, and it is outperforming AL on margins as AL’s earlier price positive aspects have faded. Tata is regaining share in PVs, will launch a new SUV in 2HCY21 and is top in EVs. We retain ‘buy’ at Rs 435 PT with India contributing Rs 200/sh of worth. In an optimistic situation, we see India worth increasing to Rs 300/sh in 2Y.
Better placed for next truck cycle: Tata lost 11ppt marketplace share in trucks more than FY12-18 as Ashok expanded its portfolio and dealer network even though enjoying tax added benefits at its Pantnagar plant. With a new CV small business head in 2017, Tata reworked its approach, focusing on sales engagement, dealer profitability and servicing. Tata’s share inched up from 50.8% in FY18 to 52.% in FY21.
Ashok’s Pantnagar tax added benefits, conversely, ended in March 2020. Ashok also had less expensive technologies for BS4 emission norms, but this benefit has most likely faded with the new BS6 norms from April 2020. We locate Tata superior placed for upcoming CV cycle and is currently outperforming Ashok on CV margins.
An enhanced PV approach: Tata is also regaining marketplace share in passenger cars (PVs) with an SUV-focussed approach, enhanced solution styling and superior brand positioning. Its FY21 marketplace share at 8% was an 8Y higher (1QFY22: 10%), and a new sub-compact SUV in 2HCY21 really should provide a additional increase.
Leading in EVs: While Indian passenger EV marketplace is nonetheless nascent, Tata has an early lead with accomplishment of Nexon SUV and has ~70% share in EVs. It’s now launching electric variant of its tiny-sedan Tigor. Tata is also kick-beginning the EV ecosystem with group firms: Tata Power setting up charging infra, Tata Chemicals evaluating Li-ion cell manufacturing, Tata Autocomp making batteries and exploring motors, and Tata Motor Finance giving options for fleet EV adoption.
Cyclical recovery ahead: Indian trucks and PVs witnessed their worst downturns of 4 decades more than FY20-21 and are poised for a huge rebound. We count on truck sector volume increasing 25%/45%/15% in FY22/FY23/FY24 our FY24E volume is nonetheless 9% under FY19 peak.
For PVs, we see sector increasing 30%/10%/10% in FY22/FY23/FY24.
Big turnaround: We see Tata’s standalone EBITDA increasing from typical Rs 14billion more than FY14-21 to Rs 82-96billion in FY23-24. FY22 really should be a net loss, but we count on standalone net profit of Rs 22-34billion in FY23-24. Standalone net debt really should fall to Rs 141billion/Rs 101billion by FY23/FY24 versus Rs 170billion typical more than FY14-21 ROE really should rise from -9% more than FY14-21 to 12-16% in FY23-24.
India Rs 200-300/sh of worth: An enhancing India franchise really should drive substantially larger standalone worth for Tata than in the last decade. JLR is facing chip shortage and EVs concern, but upcoming Range Rover (RR) and RR Sport launches provide catalysts. In our Rs 435 PT, we assign Rs 200/sh (68% of CMP) to standalone at 4.0x FY23E PB (11.5x FY23E EV/EBITDA). In an optimistic situation, we see standalone worth of Rs 300/sh in 2Y at 5x FY24E PB (13.4x FY24E EV/EBITDA). Separation of India PVs into a subsidiary and possible entry of strategic or monetary investor can drive additional worth unlocking.