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Jaguar Land Rover to invest £4.3bn on new products, technologies and facilities in FY18

The investment is intended to match JLR’s rivals in the luxury space, namely Audi, BMW, Mercedes-Benz, etc.

Tata Motors-owned luxury car maker Jaguar Land Rover (JLR) plans to invest a total of £4.3bn in FY18 for developing new products, technologies and facilities. As per JLR’s Chief Executive Officer (CEO), Ralf Speth, the investment is intended to match JLR’s manufacturing and technology prowess with that of its rivals in the luxury car segment such as Audi, BMW, Mercedes-Benz, etc. This investment is outlined for FY18E. The CEO said that JLR’s rivals have developed critical mass of volume and critical mass of products, and hence, these investments were kind of a catching up that the company was doing.

JLR has invested £1.44bn for first phase of Slovakia plant, which will commence operations by end-CY2018. The plant will have a capacity of 1,50,000 units per annum initially. The plant uses lightweight aluminium for cars and is expected to push down costs for JLR. Over the past few years, JLR has invested £2.5-3.5bn per year, and hence, the bump up in capex this year is a clear indication that the company is playing catch up.

TML, on the consolidated level, derives ~80% of its revenue (Q3FY18) from wholly owned subsidiary, JLR. Volumes for JLR have been weak or negative for more than a year (declined 3% yoy in February 2018). During Q3FY18, JLR saw some weakness due to run out of two of its models i.e. Range Rover and Range Rover Sport. However, the standalone business saw more than 750bps yoy EBITDA margin expansion due to market share gains in CVs.

We expect JLR volumes to improve on account of three new launches over next 12-18 months (Velar, E-Pace, I-Pace, RR/RRS refresh). Steady improvement in market share in both standalone CV and PV segments would drive 13% revenue CAGR over FY18-20E. EBITDA margin expansion of 201bps is expected over FY18-20E.

Tata Motors Ltd is currently trading at Rs334.65 down by Rs5.45 or 1.6% from its previous closing of Rs340.10 on the BSE.

The scrip opened at Rs341.90 and has touched a high and low of Rs342.45 and Rs334.60 respectively. So far 59,78,526 (NSE+BSE) shares were traded on the counter. The current market cap of the company is Rs1,07,860.28cr.