The Year That Was: Jaguar Land Rover

-62.32%
Downside
25.14
Market
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Trefis
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Tata Motors

More than 90% of Tata Motors‘ (NYSE:TTM) valuation comes from the British marquee brand Jaguar Land Rover (JLR). Despite forming just 51% of the net volume, JLR forms a hefty chunk of Tata’s value because of its higher average price per unit, broader margin, and higher expected rate of growth in the future,  as the brand has introduced new models in high-growth segments such as the entry-level premium vehicle segment (Jaguar XE and F-Pace).  So far this year, JLR has reported record-breaking results, selling 527,937 vehicles between January and November, up 21% year-over-year.

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According to our estimates, JLR will continue to witness high growth in volume sales over the next few years, especially considering the automaker has opened its Brazilian production plant, and is planning a new plant in Slovakia, which will augment its supply. Jaguar has witnessed a whopping 75% year-over-year growth in unit sales through November, on the back of strong sales for the compact Jaguar XE and the performance SUV Jaguar F-Pace, which together formed 68% of Jaguar’s net volumes last month. Trefis estimates Jaguar’s unit sales to grow at a CAGR of 9% between fiscal 2017 (ending March 2017) and fiscal 2024, and Land Rover’s unit sales to grow at a CAGR of 10%.

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In fact, the F-Pace, launched in March of this year, has been the best-selling Jaguar model this year as SUVs continue to witness high demand in crucial markets. In the U.S., while the overall market remained relatively flat through November, unit sales of SUVs/Crossovers rose 7% year-over-year, forming 38% of the passenger vehicle market in the country. In China as well, SUVs are the best-selling mini-segment. While passenger vehicle sales were up 17.2% year-over-year in November, buoyed by government tax breaks, and high discounts offered by dealers, SUV sales rose 41.5% to comprise ~40% of China’s overall passenger vehicle sales.

Now, JLR has revealed Jaguar’s first battery-powered electric car, called I-Pace, with a range of 500 kms or 310 miles. The I-Pace is an SUV based on the Jaguar F-Pace that will go on sale in 2018. The brand previously did not have an electric vehicle in its lineup, unlike its chief competitors Mercedes, BMW, Audi, and Lexus, but this step will help the automaker meet the broader emissions targets that are coming into force at the turn of the decade. This should further propel growth in unit sales for the company going forward.

The Tata Motors group has taken a hit so far this fiscal year (fiscal year 2017, ending March 2017) in its consolidated profits primarily because of hedging losses and adverse commodity derivative impacts. Most of the FX loss has been at JLR, where excluding the FX revaluation and one time provision for customer quality programs, and adjusting the revenue for realized foreign exchange hedging losses, the EBITDA margin rose to 12.9% in the last quarter (Q2 fiscal 2017), up from the reported margin of 10.3%, and up 70 bps year-over-year. While the numbers for the standalone business reflect weakness, JLR has been moving from strength to strength, growing volume sales considerably in 2016.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Tata Motors

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