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13/11/2017 17/11/2017
Tata Motors in driver's seat, bets on JLR prospects & local
business revival
Tata Motors (TTMT) reported an excellent set of numbers for the quarter ended September
2017, driven by the turnaround of its domestic business, and improved profitability of JLR (Jaguar
Land Rover) business. We continue to like the business on the back of reasonable valuations,
growth prospects of JLR and the focus of Tata Groups top management on domestic business
revival. Consolidated revenue (net of excise) witnessed a growth of 10 percent and came at Rs
70,156 crore, though lower by 2,393 crores due to translation impact from GBP to rupee.

JLR posted a volume growth of 5 percent (YoY) on the back of strong customer demand for Range
Rover Velar and other new models. The continued ramp-up of new models led to higher sales and
aided EBITDA margin expansion by 660 bps (YoY). The progressive reduction in hedging losses also
helped. What surprised us is the performance of the domestic business. The volumes witnessed a
significant growth of 13.8 percent (YoY) on account of strong growth across segments: volumes
for M&HCV (medium & heavy commercial vehicles) were up 28 percent, ILCV (intermediate and
light commercial vehicle) up 35 percent, SCVs (small commercial vehicles) and pick-ups up 38
percent and PVs (passenger vehicles) up 14.4 percent.

The net operating revenues for the domestic business witnessed a strong growth of 30 percent
(YoY) backed by strong volume growth complemented by a favorable product mix. In addition, the
accelerated cost reduction efforts also aided in posting an expansion of 360bps in the EBITDA
margin. After the disappointing performance in 1QFY18, the management had mentioned that it
had expedited the work on reviving its domestic business and mentioned that they were working
to improve market share, reduce cost and launch products on time.

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production.

Now, the positive result of turnaround efforts has started showing as is evident from this
quarterly numbers. The company gained 1.7 percent (YoY) and 3.9 percent (QoQ) market share in
the commercial vehicle segment after witnessing continued decline for long and has achieved
highest sales since June 2014. This was, primarily, on the back of new launches and wide
acceptance of its SCR technology complemented by the steep production ramp-up.

The management believes that the volume pick-up has started, riding on the positive impact of
GST rollout, and the governments increased focus on infrastructure spending. The management
also indicated that the strict ban on overloading would increase the demand for its products.

Moreover, the passenger vehicle segment also witnessed substantial growth and achieved highest
sales since November 2012. This was primarily on the back of new launches. The management
indicated that the new products like Tiago, Tigor and Hexa will continue to drive sales momentum.
Tata Nexon, the newly launched compact SUV has also received overwhelming traction in the
market and would add to the positive excitement.

Despite facing headwinds and uncertainties in various global markets, JLR continues to post strong
growth in volumes. The management believes that the expanding product portfolio will continue
to drive growth. Moreover, JLR is planning to launch its first PHEV (Plug-in Hybrid EV) by the end
of calendar year 2017, first BEV (Battery EV) in 2018 and targeting electrification option for at
least half of its existing product portfolio.

Recently, TTMT won the recent tender of supplying electric cars floated by Energy Efficiency
Services Ltd (EESL). This order gives a platform for the company to launch itself into the world of
EVs, the future cars. Apart from that, the order would provide a good learning experience to the
company. Based on our Sum-of-the-Parts (SOTP) valuation, we see that while most of the value
comes from the JLR business, improvement in the India business too will be an added kicker. We
advise investors with a long-term investment horizon to accumulate the stock.

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HOT PURSUIT
GST Council cuts taxes on about 175 items from 28%, only 50 luxury and 'sin' goods like
tobacco to remain in highest slab

The Goods and Services Tax (GST) Council on Friday decided to slash rates on more than 175
items, reducing taxes on these from the existing 28 percent in one of the biggest tax
reductions since the new system kicked-in from July 1. The council, which is currently meeting in
Guwahati, has decided to cut keep only 50 luxury and `sin goods like tobacco in the highest slab,
paving the way for price cuts in a raft of commonly used goods from furniture to sanitary ware.

Daily use products such as shampoo, chocolates, beauty products and construction items such as
marble and granite will cease to be in the 28 percent slab, Bihar Deputy Chief Minister Sushil
Modi said today at the sidelines of the 23rd GST Council meeting in Guwahati. The tax cuts will
have a revenue implication of about Rs 20,000 crore. The council is set to approve sweeping
changes including simpler procedures, a single return filing form for small firms and several
changes to make composition scheme more attractive.

The GST Councilthe apex body for decision making headed by finance minister Arun Jaitley
today in its 23rd meeting in Guwahati will also discuss the proposal to do away with the
distinction between air-conditioned (AC) and non-air conditioned restaurants (not under
composition scheme) and tax them at 12 percent. The reduction in rates will be a significant step
towards simplification of the GST to support the trader community ahead of the election in
Gujarat that will be held in two phasesDecember 4 and 11. Small and Medium-Sized Enterprises
(MSMEs) have been hit by the implementation of the new indirect tax system and crucial steps
will be taken to mitigate their challenges.

GST, billed as the country's biggest indirect tax overhaul, has consolidated a dozen of state and
central duties into one single levy. All goods and services have been fitted into four broad slab
structure 5, 12, 18 and 28 percentalong with a cess on luxury and demerit goods such as
tobacco, pan masala and aerated drinks.

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'Panic-stricken' Modi govt has no option but to change GST rates: P Chidambaram
Congress leader P Chidambaram today said a "shower of changes" is expected from the GST
Council meeting in Guwahati and the "panic-stricken" Modi government has no option but to
change the new tax rates. The high-powered committee headed by Union Finance Minister Arun
Jaitley is meeting in the Assam city to discuss GST rates.

Chidambaram said the government will be forced to heed the advice of the opposition and
experts due to the Gujarat assembly elections next month. "Expect a shower of changes in GST
rates from GST Council meeting today. Panic-stricken govt has no option but to concede demands
for change. "Thanks to Gujarat elections, government forced to heed advice of Opposition and
experts on flaws in implementation of GST," he tweeted.

Chidambaram said the letter from the finance ministers of Congress-ruled states to Jaitley will set
the tone for discussions in the GST Council today. "Congress FMs letter exposes the structural
flaws in the design and implementation of GST. Government can no longer duck these issues," he
said. The Congress leader said the government had avoided debate and voting in Rajya Sabha on
GST Bills but it cannot avoid a debate in the public domain or in the GST Council.

"Congress FMs will force changes in GST Council meeting today. Agra, Surat, Tiruppur and other
hub towns are watching," he said. The finance ministers of Congress ruled states last week
demanded a major overhaul of the Goods and Services Tax (GST), alleging that the tax reform
measure had turned out to be a "big disappointment" due to its "poor" implementation.

The finance ministers of the Congress-ruled Punjab and Karnataka, Manpreet Badal and Krishna
Gowda, alleged that the country had "lost the opportunity" to bring tax reform and that there was
"utter chaos and confusion", forcing many businesses to shut down. They also alleged that there
was "poor implementation" with regard to GST's concept, design, tax rates, exemptions,
compliance requirement and technological preparedness.

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Maruti Dzire retains top spot 3 months in a row with sales of over 20,600 in Oct

Dispatches during the festive month of October were slightly lower than previous month as
dealers expected demand to taper off and discount levels to rise once again. Into its sixth
month Maruti Suzuki Dzire topped the charts for the third time in a row selling 20610 units during
October even as Marutis old warhorse Alto was immediately behind with 19,447 units sold during
the same month.

Premium hatchback Baleno, which is one of the two runaway hits from Maruti Suzuki, clocked
volumes of 14,532 units last month. The Baleno was also the third high-selling model for the
industry. Some of the older models of Maruti Suzuki such as Wagon R, Swift, Ciaz and Ertiga did
not grow while the newly launched S-Cross more than doubled volumes in October. Total
domestic passenger vehicle volumes of the market leader grew by 9.3 percent to 1.35 lakh units
as against 1.23 lakh units sold in the same month last year.

Korean car brand Hyundai reported a slight fall in sales in October to 49588 units as compared to
50017 units. Its Grand i10 was the highest-seller clocking 14417 units followed by i20 Elite with
sales of 11012 units. Creta, the compact SUV, reported a growth selling 9248 units. Mahindra &
Mahindra disappointed in October with a fall of 5 percent clocking 23413 units as against 24737
units. Scorpio volumes went down perhaps with the anticipation of the facelift version due to hit
the market next week.

While Bolero volumes remained flat, Scorpio reported a drop of 35 percent during October.
However, thanks to the new model, the KUV100 clocked a growth of 38 percent to emerge as the
second highest selling model for M&M. Tata Motors emerged as the fourth highest seller of
passenger vehicles in October beating Honda Cars India with sales of 16475 as against 14234 units
clocked by the Japanese company.

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India, China likely to hold border talks next month

India and China are expected to hold the next round of talks on border issues as well as on other
bilateral topics next month, the first between the two countries after Chinese President Xi Jinping
began his second term as the chief of the ruling Communist party. The Chinese Foreign Ministry
spokesperson Hua Chunying said here today that the 20th round of the India-China Special
Representatives border talks as well as the Russia, India and China (RIC) Foreign Ministers meeting
will be held in "due course". She declined to give a schedule of both the meetings.

Officials, however, say both the border talks and the RIC meeting were expected to be held next
month in New Delhi. The 20th round of border talks will be the first after the recent 73-day long
Dokalam standoff between the two countries. The border talks will be held between National
Security Advisor Ajit Doval and China's State Councillor Yang Jiechi, who are the designated Special
Representatives.

The two high-ranking officials also has the mandate to hold talks covering all the issues concerning
the bilateral relations. Yang, who currently holds the rank of the State Councillor which is few
notches higher than the foreign minister, has now been elected to the powerful 25-member
Politburo of the ruling Communist Party of China at its recent once-in-a-five-year Congress.

He is formally expected to relinquish his current post after March next year. Foreign Minister,
Wang Yi is largely tipped to take over as the State Councillor. Hua, however, said Yang continues
to be the Special Representative for the India-China boundary talks. I have not heard about any
changes in the Special Representative on the Chinese side," she said.

Both the Chinese and Indian leaders attach great importance to the boundary issue and we have
made efforts for many years to resolve this issue, she said. "In the previous meeting the Special
Representatives had exchanged views and made positive progress. Now this mechanism is
operating very well. The two sides will decide the date and time for this year's meeting in due
course," she said.

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Officials say the two sides achieved steady progress in manging the differences over the border
due to the border dialogue mechanism though an agreement is yet to be reached. Commenting
on the forthcoming talks, Chinese experts said managing a crisis from a potential border conflict
will top the agenda of the border talks.

The news on the highest-level border talks between China and India is a very positive sign that the
two countries are committed to resolving problems through dialogue instead of confrontation,
Qian Feng, an expert at the Chinese Association for South Asian Studies, told state run Global
Times today. "Resolving the border disputes has stagnated and the Dokalam standoff has led to a
rethinking on the ties of the two countries, which will be reflected in the talks," Qian said.

The talks, coming months after the Dokalam standoff, will put managing a crisis on the top agenda
as future disputes remain possible, and both sides need to manage the disputes and avoid
confrontation, Qian added. Foreign Ministry Spokesperson Hua also hinted that the next round of
the RIC meeting will also be held soon.

"We highly value this mechanism. According to my information the three parties are in
communication to this specific issue. We support India in holding this meeting," she said. Earlier
Chinese officials told PTI that the RIC meeting will be held in Delhi in December in which Wang will
take part.

The talks will be the first round of dialogue after the CPC endorsed a second five-year term for Xi,
with renewed powers. Besides Dokalam, a host of issue including differences between the two
countries over the USD 50 billion China- Pakistan Economic Corridor (CPEC) are expected to figure
in the talks. The CPEC is a part of China's multi-billion dollar Belt and Road Initiative (BRI). India
objected to the CPEC as it goes through Pakistan-occupied Kashmir. Also the talks will be held in
the backdrop of the new South Asia policy announced by US President Donald Trump ramping up
pressure on Pakistan to crackdown on terror havens.

Trump held extensive talks with Xi during his three-day trip here which ended today. Hua
yesterday said both Trump and Xi discussed anti- terrorism issues related to South Asia and
reached a consensus to uphold peace in the region. In her briefing, Hua did not confirm any
meeting between Prime Minister Narendra Modi and President Xi at the East Asia Summit, being
held in the Philippines. "So far I have no specific information to offer. Various parties can keep
communication, if they would like to meet," she said.

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