Tata reported fourth-quarter adjusted net income (adjusted for special items) of Rs 42.3 billion, representing a 17% increase on the comparable year-ago result and is in line with our estimates.
Sales came in at Rs 675 billion, 2.5% below our estimate of Rs 690 billion, largely owing to a change in geographic market mix, as Chinese share in sales volume fell to 19% from 24% a year ago.
Similarly, adjusted EBITDA margins contracted to 14.7%, versus 15.3% a year ago, as China is a high-margin region for Tata. However, Tata ended the full year with adjusted EBITDA margins at 15.7%, above our long-term 15% EBITDA margin assumption, and we currently do not see any need to change our forecasts.
We maintain our narrow moat rating and fair value estimate of Rs 700 per share. We believe the market has largely overreacted to the special items (namely, foreign exchange mark-to-market losses, debt prepayment penalty and right issue expenses) and has ignored the robust underlying numbers. We see this stock as undervalued with the shares trading at more than a 30% discount to our fair value estimate based on five-year discounted cash flow estimate and a 25% to 30% discount to other covered luxury peers such as BMW and Volkwagen.
We continue to expect January and Land Rover, or JLR, sales volumes to grow at an annualised average of 9% across our 2016-2019 forecast period versus the past three-year average of 14%. This will be driven by added capacity enabling JLR to meet excess demand in the higher-volume
entry-level luxury segment, with the global launch of the Jaguar XE. Overall, the Indian business is steadily improving while JLR business remains stable.
Although Tata has missed our full-year sales volume growth estimates, we are still satisfied with flat fourth-quarter volume as it reflects strong growth across all major markets except China where ramp-up of local production has been slower than our expectations.
Three vehicle models constituting about 50% of Chinese sales have been moved into the Chinese plant and the import of these models has been halted in the fourth quarter. Due to the slower-than-anticipated launch, we lower our estimated fiscal 2016 Chinese sales volumes and push the
estimated volumes into 2017.
