Moneycontrol
Nov 10, 2017 06:12 PM IST | Source: Moneycontrol.com

Tata Motors shares fall 4% post cautious commentary on JLR; analysts barring CLSA remain positive

September quarter results surpassed estimates as margins surprised positively for Jaguar Land Rover and India.

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Commercial and passenger vehicle maker Tata Motors fell 4 percent to close at Rs 422.65 per share on Friday despite better-than-expected earnings, as management commentary was cautious on its luxury brand Jaguar Land Rover. Analysts barring CLSA remained positive on the stock.

Global brokerage house CLSA has maintained sell rating on the stock with a target price of Rs 395 per share as management's commentary on Jaguar Land Rover was cautious given weak demand in US & UK, and margin pressure.

"We raise earnings per share estimates for the current financial year by 14 percent but remain concerned on Jaguar Land Rover," the research house said.

According to CLSA, concerns for Jaguar Land Rover could be subdued western world demand, margin pressure, weakening product mix and ageing key models.

September quarter results surpassed estimates as margins surprised positively for Jaguar Land Rover and India.

However, sustainability of margin improvement in India is crucial, CLSA feels. It raised FY18 EPS estimate by 14 percent but maintained FY19-20 earnings.

Jaguar Land Rover, which contributed 78 percent to total revenue, said revenue in September quarter grew by 11.5 percent to 6.3 billion pound compared with year-ago period. Operating profit margin for the quarter stood at 11.8 percent, higher by 150 basis points year-on-year and 390 basis points QoQ. It was also much higher compared with CNBC-TV18 poll estimates of 10.7 percent.

Tata Motors posted a robust three-fold growth year-on-year in profit at Rs 2,501.67 crore for July-September quarter, driven by better-than-expected JLR's operational performance.

Consolidated revenue from operations (net of excise) jumped 10.3 percent to Rs 70,156 crore YoY, driven by better product mix in JLR and higher volumes in standalone business. Operating profit for the quarter was higher by 42.8 percent at Rs 9,010 crore and margin expanded by 280 basis points to 12.7 percent compared with same quarter last fiscal.

Here are other brokerage houses that are positive on the stock:-

Brokerage: Motilal Oswal | Rating: Buy | Target: Rs 575

Motilal Oswal said that the company had a strong performance at both JLR & India business. Further, it highlighted that the management maintained 10 percent retail growth guidance for FY18, while forex hedge losses could reduce from the fourth quarter. The brokerage upgraded consolidated EPS estimate by 23 percent and 6 percent for FY18 and FY19. It is building in margin expansion at JLR & S/A business.

Brokerage: BofAML | Rating: Buy | Target: Raised to Rs 535 (from Rs 525 per share)

Bank of America Merrill Lynch said that results were in line with expectations and margins for both JLR and India improved due to higher volumes and cost controls. Further, second half of FY18 is likely to be stronger on scale-up of new launches along with lower realised forex losses and continued improvement in India business.

"We lower FY18 EPS estimates for JLR's YTD volumes, but raise FY19 estimate," it said while retaining buy call on the stock with increased target price at Rs 535 from Rs 525 per share.

The research house also raised India’s operating estimates for the current and next financial year by 44 percent and 32 percent, respectively.

It expects improving share in medium and heavy commercial vehicles and higher car volumes trajectory to continue in the next financial year.

Brokerage: Credit Suisse | Rating: Outperform | Target: Rs 560

While maintaining outperform rating on the stock with a target price at Rs 560 per share, the brokerage house said that margin was beat at JLR and domestic levels.

Margin improvement was driven by forex benefit, volume improvement and better product and geography mix. Market outlook in Jaguar Land Rover’s strongest market, the UK is particularly weak, it said.

Credit Suisse has raised standalone margin estimates by 100 bps but reduced JLR volumes marginally.

"We cut JLR's Multiples to 3.5x from 4x," it said.
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