Feb 15, 2017 06:31 PM IST | Source:

Tata Motors sinks 11%; analysts cut target sharply post Q3 nos

Credit Suisse has maintained outperform rating on the stock, with reduced target price at Rs 630 from Rs 680 after cutting FY17/FY18/FY19 EPS estimates by 26 percent/15 percent/12 percent.

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Tata Motors shares crashed 10.6 percent intraday Wednesday (on top of 3.7 percent loss in previous session) as brokerage houses worried about company's hedging losses that may likely to continue for next 3-4 quarters.

Analysts slashed target price of the stock sharply due to disappointing set of earnings in the quarter ended December 2016.

CLSA has downgraded the stock to sell and lowered target price to Rs 405 from Rs 650 after cutting FY18-19 EPS estimates by 25-31 percent due to dismal performance in Q3FY17.

Management commentary on JLR margins has weakened significantly, it says, adding hedging losses are likely to continue at high levels for longer.

JPMorgan also reduced its target price on the stock to Rs 570 from Rs 610 after cutting FY17/18 JLR EBIT estimates by 26 percent/17 percent and consolidated earnings estimates by 33 percent/23 percent. It advises buying on dip as margin miss was not as bad as it seems.

Edelweiss downgraded the stock to hold from buy, with reduced target price at Rs 501 (from Rs 604) after lowering FY17/18 EBIDTA estimates by 35/25 percent to Rs 29,500/38,500 crore to reflect weaker margins.

The commercial vehicle and luxury car maker's third quarter profit on consolidated basis fell sharply by 96 percent year-on-year to Rs 112 crore, impacted by big loss in domestic business and operational weakness in JLR due to adverse product & regional mix and higher discounts.

UK subsidiary Jaguar Land Rover's net income during the quarter dropped 62 percent year-on-year to 167 million pound as operating profit fell 26.7 percent to 611 million pound and margin contracted 510 basis points to 9.3 percent on year-on-year basis, which both were far below estimates.

Edelweiss says JLR, management indicated that it can take 4-5 quarters to reach 14-16 percent margin trajectory and average discounts are likely to remain higher in 2017 versus 2016/2015.

JLR’s volume momentum will be sustained by series of new launches/upgrades from January 2017 (new Discovery, XF in China, mid-size Range Rover and smaller crossover E-Pace), the company says.

For India, Tata Motors indicated that efforts intensified to improve profitability and regain market share in commercial vehicle; and capex is expected to remain at Rs 3,500 crore till FY19 for various product development program.

On standalone basis (i.e. domestic business), the company posted a big loss of Rs 1,046 crore during the quarter against Rs 137 crore in Q3FY16 and that was quite higher compared with Rs 500 crore estimated by analysts. In previous quarter (July-September), the loss was Rs 631 crore.

Other brokerage houses also cut target price, though they retained their rating on the stock.

Credit Suisse has maintained outperform rating on the stock, with reduced target price at Rs 630 from Rs 680 after cutting FY17/FY18/FY19 EPS estimates by 26 percent/15 percent/12 percent.

The brokerage house has built in slightly lower margins to account for higher incentives. It expects moderating forex losses from June onwards and sees progressive reduction in hedging losses.

Macquarie also retained outperform rating but cut target to Rs 575 from Rs 630 after lowering FY17/18/19 consolidated EBITDA estimates by 20 percent/10 percent/7.0 percent.

Most negative factors that impacted Q3 earnings are transitory, it feels. It expects stronger sales growth & margin for JLR in FY18.

Deutsche Bank, which has a buy call on Tata Motors with reduced target at Rs 535 from Rs 575, says currency gains remained elusive but management looks upbeat on new models. It expects margin to normalise in medium term.

Bank of America Merrill Lynch also retained buy call but cut target price to Rs 560 from Rs 575. The brokerage house forecasts consolidated EPS CAGR of 41 percent over FY16-19. It feels weaker GBP will remain a tailwind to margins in FY18/19 and pre-buy for commercial vehicles should help margins in Q4.

Citi says correction in stock price is a buying opportunity as its feels details reveal a brighter picture, though headline is weak. JLR's favourable FS trends should aid in healthy volume growth, it believes. The research firm has a buy call on the stock, with a target price at Rs 660.

Kotak expects gradual improvement in JLR EBITDA margin as forex hedge rate comes closer to spot rates in next two years. Volume growth will likely remain strong led by a fresh and young model line-up, the brokerage house says while maintaining buy rating on attractive valuations but lowered target price to Rs 550 (from Rs 600 earlier).

At 09:25 hours IST, the stock was quoting at Rs 445.70, down Rs 41.10, or 8.44 percent amid high volumes on the BSE.

Posted by Sunil Shankar Matkar

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