The Tata Motors and TPG deal is shocking and optimistic for TTMT as: (i) TPG is ascribing a worth of $6.7–9 bn to TTMT’s India passenger EV enterprise—merely 1k unit gross sales in Sept-21; (ii) it addresses money movement wants of the EV enterprise (>Rs 160 bn) for the subsequent 5 years; and (iii) the normal PV enterprise can deal with its objective of double-digit market share, excessive single-digit margins and being FCF-positive.
We had earlier argued that old-line OEMs have come a great distance in constructing capabilities whereas valuations are caught within the sluggish lane, implying an enormous choice worth. TTMT’s India PV enterprise has demonstrated this, whereas all eyes had been on JLR. Retain ‘BUY/SO’ with a revised SoTP-based TP of Rs 539 (earlier Rs 397).
Particulars of deal: TPG Rise Local weather together with co-investor ADQ will make investments $1 bn in tranches over a interval of 18 months within the type of CCPS for an 11–15% stake (relying on sure thresholds) in TTMT (S) EVCo [new passenger EV company as a subsidiary of TTMT (S)]. TTMT (S) EVCo can be asset-light and use the present TMP ecosystem for manufacturing, branding, again workplace assist, and many others.
Capex: Until now, TTMT (S) has invested ~Rs 150 bn into the EV enterprise. Additional, it expects >$2 bn funding over 5 years to launch 10 EVs (throughout value factors). And it’ll create EV infrastructure in India, if wanted, in affiliation with Tata Energy.
EV enterprise breakeven and profitability: Being an asset-light mannequin, it is going to be Ebitda breakeven in FY23 as volumes scale up. Gross margins are just like ICE. Over subsequent 5 years, expectation is EV penetration can be ~10% with TTMT’s market share at ~20%.
Key catalysts for EV adoption: (i) Rising value of ICE because of regulatory requirement, rising gas value and decreasing costs of EV to convey TCO of EVs in parity with ICE engines. (ii) Extra mannequin launches by business to herald consciousness. (iii) Enlargement of community – distribution, charging. (iv) Introduction of long-range merchandise. (v) Authorities push for EV adoption.
Outlook and valuation: EV shock
India and JLR are on the cusp of sturdy demand and product cycle tailwinds. This could facilitate steadiness sheet enchancment–key driver of our Braveheart name. The TPG deal supplies further consolation on TTMT India EV capabilities. This can be relevant to different old-line OEMs too. As collateral harm would be the questions on conventional ICEPV enterprise. That is already mirrored within the valuation of world old-line OEMs.
We’re elevating SoTP-based TP to Rs 539 (from Rs 397) as we roll over to Mar-23, incorporating Rs 105 as worth for the EV enterprise (assumed 20% low cost to mid-point worth of transaction at $7.7 bn) and decrease the EV/Ebitda for conventional PV enterprise to 5x from 15x earlier to recognise the cannibalisation threat. Key occasion to be careful for would be the ramp-up in EV enterprise. Preserve ‘BUY/SO’.
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