Feb 18, 2013 08:21 AM IST | Source:

Analysts upbeat on Tata Motors despite poor Q3

Brokerages remain bullish on Tata Motors, despite, the India's largest commercial vehicle maker, reporting disappointing earnings for the third quarter.

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Moneycontrol Bureau

Brokerages remain bullish on Tata Motors, despite, the India's largest commercial vehicle maker, reporting disappointing earnings for the third quarter.

The company's Oct-Dec quarter consolidated net profit halved to Rs 1,628 crore (analysts expected Rs 2,250 crore), while revenue rose a modest 2 percent to Rs 46,090 crore (analysts expected Rs 47,277 crore). The profit was lower on the back of a huge loss in the domestic business and lower profit at JLR.  

Margins in both JLR and the standalone business declined, with the operating margins coming in at a paltry 2.2 percent.

Slump in medium & heavy commercial vehicle sales in the domestic market and huge discounting by companies including Tata Motors, along with sluggish growth in passenger cars, are key reasons for the huge Rs 458 crore loss in the standalone operations.

The outlook for the fourth quarter remains bleak as there are no signs yet of a turnaround in the CV cycle. However, analysts are not too worried on that front as the domestic business only accounts for a minor share of its profits. Its the JLR division that accounts for over 90 percent of the company's earnings and despite, the fall in profit and margins last quarter, analysts remain upbeat given JLR's strong product pipeline led by the Evoque, new Range Rover and strong demand in markets like China.

"Ongoing losses in the India business is a risk, but given the trough in the MHCV cycle and that the India business contribution to FY14 will be limited to 15 percent, we stay 'overweight' as product momentum at JLR is surprising us on the upside," said Morgan Stanley analysts Binay Singh and Shreya Gaunekar.

JP Morgan too is "overweight" on Tata Motors.

"The growth at JLR remains healthy with the new Range Rover receiving an encouraging response...Over FY14, volume growth should be driven by new product launches, including the Range Rover, Jaguar F-Type and the Range Rover Sport," said JP Morgan analysts Aditya Makharia and Ritesh Gupta.

They believe that the healthy growth outlook at JLR will drive stock price performance.

"Frankly, the poor show didn't break our heart because we fell out of love (standalone business) a long time ago. JLR on the other hand remains oblivious to whatever is happening with the parent. In fact, the strong JLR margins resulted in absolute consolidated EBITDA marginally beating our estimates. That keeps us bullish and we bank upon the best period of JLR's product life cycle while reiterating 'buy'," said Ashish Nigam and Saksham Kaushal of Antique Stock Broking.

Nomura Financial Advisory and Securities India analysts Kapil Singh and Nishit Jalan said that JLR margins at 14 percent were in-line, although standalone business margins were a negative surprise.

While the domestic business will continue to face headwinds, the Nomura analysts feel JLR's margins should improve from here on, driven by product and geographic mix.

Tata Motors shares opened lower on Friday, but later reversed losses and closed at Rs 304.45 on NSE, up 2.4 percent. The stock has gained near 11 percent so far this financial year.

Nachiket Kelkar

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