Tata Motors: Jaguar Land Rover Robust Global Sales

| About: Tata Motors (TTM)


JLR reported global sales for November with strength in Europe and the US. China was weak.

Demand appears to be sustainable in both EU and the US. China recovery could be a catalyst.

Pipeline attractive. Valuation reasonable at 6.5x 2017E earnings.

Tata Motors' (NYSE:TTM) Jaguar Land Rover reported global retail sales that saw a +27% y/y increase driven by strong growth in Europe, North America and the UK that countered the weakness in China. Despite the weakness in China, I remain bullish on TTM given JLR's softness is not a function of demand but rather due to model transition. Worth noting that SUV sales remain robust in China and JLR is one of the better SUV brands on the market. I remain bullish on TTM as my top Indian auto OEM pick. The stock currently trades at 6.5x 2017E earnings and continues to have one of the best growth outlooks globally among the auto OEMs.

Land Rover sales grew 26% to 38.5k units and were driven by strength in Discovery Sport that saw +162% y/y increase as it rides on the back of the current model replacement cycle. Range Rover and Range Rover Sport saw sales up 15% while Defender sales grew 27%. On the other hand, Evoque sales declined 1% due to weakness in China, where the recent tax cut does not apply to JLR. Overall, China sales declined 22% despite the sequential improvement over the past five months. This is a stark contrast to that of the UK where saws up 70%, Europe (+68% growth) and North America (+52% growth). However, I do not believe the weakness in China is a structural challenge in that the Land Rover remains one of the most popular luxury SUVs in China, and that demand is likely to rebound as China further transitions into a service and consumer-oriented economy.

As for Jaguar, sales were up 33% to 7.9k units driven by strong demands for the XE sedan, which accounted for over half of the Jaguar sales. However, XF model saw shipments decline 41% y/y while XJ sales declined 22% due to upcoming model changes. New XE models started in the UK and European markets in May, while China may have generated incremental sales since model launch in October but the volume is still low. US could be a bigger catalyst in January next year.

Looking at the pipeline, JLR continues to have a solid list of new models prepped for the next three years. The new XE in key markets will be completed in January and as I stated before, this could be a positive catalyst. The new XF sedan and the new XJ model will dominate 2016. The new F-Pace production will start in 2016 targeting a mid-2017 launch, followed by L560 Range Rover launch at the end of 2017. Finally, the new Ingenium 4-cylinder engine across the JLR models could potentially be a catalyst, given its solid power output and fuel efficiency.

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