Volume growth for JLR should remain robust in FY14F led by strong growth in China, says Nomura Equity Research in its report on Tata Motors
Volume outlook in the domestic MHCV (medium and heavy commercial vehicle) industry remains weak at least in the near term. The recent decline in market share in MHCVs partly reflects lower dispatches due to inventory adjustments. Further, as per Tata Motors (TML), competitors have added inventory which has impacted TML’s market share; retail market share is much higher for TML than the share based on wholesale volumes.
The company has reduced inventory in the passenger car segment over the last few months. Thus, retail volume run-rates in this segment are higher than wholesales seen over the last few months, according to the company. In terms of new launches, the company will launch more trucks under its Prima range in the MHCVs and ACE family in the LCV segment over the next one year. Further, there will be entire new range of vehicles which will be launched in FY14F in the LCVs segment called ‘Ultra’ range, according to the management. In the car segment, there will be new variants and refreshments launched for different models over the next one year. The company maintained its capex target of Rs30 billion annually. This is Tata Motors’ domestic scenario in a nutshell, according to Nomura Equity Research analysts in its report on the company.
Volume growth for JLR should remain robust in FY14F led by strong growth in China. Nomura expects margins to remain in the 15%-15.5% range over the next two years. Global slowdown remains a key risk, while stronger-than-expected success of new models could present upside to medium-term volume growth.
According to Nomura, JLR will look to expand its dealer network to 150 dealers over the next one year (120-130 dealers currently). 4QFY13F should see the full benefit of the launch of the new Range Rover and start of All Wheel Drive (AWD) and smaller engine models in Jag XF, XK models. This should particularly help improve demand growth in the US market, according to the company. The new XF Sportsbrake will be launched in this quarter, while F-TYPE model will be launched in 1QFY14.
Adverse currency movements (quarter-on-quarter) impacted margins by around 50 basis points in 3QFY13. Further, margins were also impacted by an inferior product mix, higher variable marketing expenses and launch expenses of the new Range Rover. The Castle Bromwich plant (manufactures Jag models) is now working on a two-shift basis (compared to one-shift earlier) due to the new model launches. The other two plants at Solihull and Halewood continue production on a three-shift basis.
JLR’s margins should improve driven by product and geographic mix, while the domestic business will likely continue to face headwinds. Given the bullish stance of its China Autos team on the luxury segment, Nomura has revised up its volume estimates for JLR, but reduced its estimates for the India business. Overall, its consolidated EPS estimates are down by 5% for FY14F and up by 2% in FY15F.
Nomura analysts note that Bloomberg consensus FY15F EV/EBITDA multiples of other luxury car companies average around 2.5x, compared to 3x for JLR; thus already factoring in a stronger performance.
TML’s 3QFY13 adjusted net profit of Rs18.1 billion was below Nomura’s estimate of Rs25.3 billion. JLR’s net profit at GBP296 million was in line, but a domestic net loss at Rs4.5 billion was significantly below Nomura’s estimate (loss of Rs1.4 billion). Margins for JLR at 14% were in line, while those for the stand-alone business at 1.4% were a negative surprise, according to Nomura analysts.
Nomura remains ‘Neutral’ on whether to buy or sell the Tata Motors share in the stock exchange.
The AIMA’s board is represented by some of the illustrious names in Indian industry. Yet AIMA’s doctorate program resembles some of the “fly-by-night” educational institutes and costs a lot of money. Very few candidates make it through
Typical Indian families across social and economic levels have big aspirations of which education is among the most important. This is now often the second or third highest single investment expense involved in a lifetime. So high are the numbers that education is now priced high and without much effective regulation.
Until a few decades ago, it was considered a safe bet, largely because it was mostly run under the government entities. Not any more, as privatisation and liberalisation sweeps across the country, especially, but not restricted to, higher education.
It is easy to point fingers at sub-standard schools and colleges, dotting the country, operated like money-minting machines by a vast variety of carpetbaggers. The easiest to spot are those named after politicians or their relatives. Others have acquired high brand status for themselves on sheer dominance of creative advertising. Certainly, there is no denying that such institutions fill a space, since the government as well as social sectors which previously handled these wants and needs have simply not kept pace with change.
An apt example is education and training in my own profession—the Merchant Navy. Till a few decades back, training for the Merchant Navy was pretty much through government-run institutions and onboard ships which one “came ashore” for exams.
Paying for education usually goes like this: You pay a fat sum of money running into lakhs per year. Then, you go and spend time attending classes. After some time, you learn that the institute may or may not be recognised by an assortment of “accredition bodies". Other times, after some few years, you may get a certificate of some sort without any classes ever having been held. The list and variations go on. Most cases, these are institutes which from a distance can be recognised as not much better than fly-by-night.
But what do you do if the educational promises are held out by an organisation that has the best of corporates and government entities on its board and management?
Here’s one described according to its website:
And this is none other than the AIMA (All India Management Association).
Look at who sits on its board. It reads like a who’s who of the Indian corporate horizon.
You can access rest here: http://www.aima.in/discover-aima/management-team/office-bearers.html
The Centre of Management Education (CME) division of AIMA runs a PhD program which it calls as joint AIMA-AMU PhD in Business Administration (AMU – Aligarh Muslim University). Hundreds of students enroll for the program but only about 10 to 15 candidates are actually selected for the real PhD research phase, every year.
Usually, after the entrance exam and interview, candidates must receive an admission to PhD by an authorized university because only a university can run a PhD degree program. However, in case of AIMA’s PhD, after the entrance exam and interview, there is no admission letter or any registration done by the university i.e. AMU in its PhD program. A letter deceptively stating that admission to foundation phase of PhD is given by AIMA and in reality its students get admission to this deceptively planned almost two years of foundation phase of AIMA with no communication or letter from AMU or any formal registration at AMU.
AMU does not have capacity to handle hundreds of students for PhD and yet AIMA goes ahead and enrolls candidates. University Grant Commission (UGC) regulations points 7,8,9 (UGC Minimum Standards and procedure for awards of PhD degree regulations 2009, Gazette of India, July 11, 2009) clearly stipulate that the number of seats in PhD have to be decided in advance and communicated on websites and advertisements and so on.
If a student is lucky not to get shunted out of the foundation phase and clears it in about two years, he/she is allowed to write a synopsis but has not provided any internal supervisor from the university at the synopsis stage because: a) he/she is not registered with the university and b) there will be accountability with the faculty at AMU about high failure rate.
AIMA boasts about its “high quality” and competitive programs but this is a deception. In reality many UGC norms are being flouted and, in reality, AIMA is de facto running an Advanced Diploma in Management (in the garb of foundation phase of PhD program) with only a 10% chance to reach real PhD research to obtain a degree. It is inconceivable how UGC regulations are flouted and a university like AMU lets it happen.
The net outcome is that AIMA makes crores of rupees by way high fees from hundreds of enrolled candidates. If a student does not clear 11 exams or passes them with an unsatisfactory grade, then it is ‘goodbye’ for him/her. If he/she clears the exams he/she is allowed to write a synopsis and is given just two chances to get it accepted. If not, then goodbye again.
Almost 90% of enrolled students fail to clear after spending insane amounts of money.
AIMA itself refused to respond to direct queries. Discreet enquiries by MoneyLife revealed that this has been going on for years, that this is known to all, and that this continues to this day.
Indian steel demand has grown at a rate of 4%-5% for the last 12-18 months and has now started to reflect in the weakened pricing power of the companies, says Nomura Equity Research in its report on medium-term prospects for Tata Steel
Weak domestic steel demand growth in the last 12-18 months has resulted in Indian steel prices trading at a discount to import parity. While Nomura does not expect a significant improvement in operating environment in the near term, it expects Tata Steel to see improved profitability with stabilization of expansion. This is reflected in by Nomura Equity Research in its report on the medium-term prospects for Tata Steel.
Indian steel demand has grown at a rate of 4%-5% for the last 12-18 months and has now started to reflect in the weakened pricing power of the companies. While Indian steel prices used to be at a premium to import parity (until 6-8 months back), domestic steel prices are now at a discount of 1%-2% to import parity (current discounts are at 4%-5%).
Tata Steel should see a gradual improvement in the profitability of its Indian operations despite a challenging external environment driven: by (a) ramp-up of 2.9mtpa expansion; (b) production from coke oven battery; (c) residual benefits of lower coking coal prices and (d) commissioning of cold rolled mill in H2FY14F, according to Nomura analysts.
At the same time, European operations of Tata Steel should also see EBITDA/tonne stabilizing at $30-35/tonne, driven by: (a) Port Talbot BF rebuilt (it will have better efficiency, lower fuel rate, etc) (b) marginal improvement in pricing outlook in Europe, and (c) lower raw material costs.
Weaker domestic steel demand has started to reflect in realization pressures. Nomura has lowered its FY14F and FY15F realization estimates for Tata Steel’s Indian operations by 1.2% and 1.8%, respectively. It has lowered its sales volume estimates to 8.7millon tonne in FY14F (from 9.1mt earlier and as per Tata Steel management’s guidance) and 9.3mt in FY15F (from 9.4mt earlier). As a result, Nomura’s FY14F and FY15F stand-alone EBITDA estimates are down 8% and 4.3%, respectively
Nomura estimates Tata Steel’s average realization premium to shrink to 10% in FY14F from 13.7% in FY12 and 11.5% in FY13F on account of both (a) discount of 1%-2% ascribed to domestic steel price in general and (b) deterioration in product mix. However, it expects premiums to again improve to 11.5% in FY15F as cold rolled mill would come on line and product mix in general would improve. Nomura’s analysts maintain their ‘Buy’ recommendation for the company’s share.