Neal Bhai Reports — Tata Motors is Back in the Race with JLR in Top Gear — Despite modest business growth in the domestic market, Tata Motors appears to be an attractive bet in the auto industry , thanks to the superior performance of its UK-based subsidiary, Jaguar Land Rover (JLR), which contributes 85% to total revenue.
JLR is focusing on diversifying its product portfolio by introducing new models at shorter intervals and expanding Jaguar brand to sport utility vehicles (SUVs) from sedan. The efforts are yielding results as JLR reported 22% volume growth in the 12 months to August 2016, nearly three times that of the premium car industry growth.
In addition, the expansion of global footprint helped it gain market share in the range of 100-200 bps in various geographies. Over five million luxury cars are sold around the world. To find growth amid slowing economic growth and limited scope to increase product prices, JLR has been building new product cycle. It plans to launch a range of models such as Evoque convertible, next generation Discovery and new small Range Rover Sport in the next few years. This is likely to reduce JLR’s vehicle portfolio age to 2.9 years by 2018 from 3.8 years at the end of FY16. Its German peers have product portfolios with 2.53 years of age. Analysts expect annual volume growth of 14.5% for JLR between FY15 and FY18 as against less than 5% for its competitors.
SUVs form nearly one-third of the premium car segment with a growth of over 50%. To tap growth in the segment, JLR has expanded its sedan brand Jaguar to the SUV category by introducing F-pace model. The retail sales volumes of JLR grew 28% in September largely due to 7,221 incremental units of F-pace. Excluding this, volumes grew by 13%, which shows that F-pace has not cannibalised the sales of JLR’s other SUV models. This offers a higher volume visibility. Jaguar’s volume have grown 80% in FY17 so far, while JLR’s total volumes grew by 22%. Analysts say Jaguar revenues may touch £8.3 billion in FY19 from £3.7 billion in FY16.
Owing to superior volume growth and visibility , Tata Motors trades at nearly 30% premium to BMW considering the enterprise value (EV) relative to operating EBITDA. Global premium car makers have EVs in the range of 2-3 times of EBITDA. Tata Motors may report a further expansion in relative valuation considering that JLR’s product launch cycle is shortening and market share is expanding.
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