Tata Motors hits new high on CLSA, Credit Suisse upgrade

Tata Motors shares accelerated over 4 percent to a new high of Rs 329 on Wednesday after CLSA upgraded the stock to buy from outperform and Credit Suisse upped its rating to outperform, citing strong growth prospects for Jaguar Land Rover, driven by the new Range Rover and Chinese demand.
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Jan 09, 2013, 03.49 PM | Source: Moneycontrol.com

Tata Motors hits new high on CLSA, Credit Suisse upgrade

Tata Motors shares accelerated over 4 percent to a new high of Rs 329 on Wednesday after CLSA upgraded the stock to "buy" from "outperform" and Credit Suisse upped its rating to "outperform," citing strong growth prospects for Jaguar Land Rover, driven by the new Range Rover and Chinese demand.

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Tata Motors hits new high on CLSA, Credit Suisse upgrade

Tata Motors shares accelerated over 4 percent to a new high of Rs 329 on Wednesday after CLSA upgraded the stock to "buy" from "outperform" and Credit Suisse upped its rating to "outperform," citing strong growth prospects for Jaguar Land Rover, driven by the new Range Rover and Chinese demand.

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Tata Motors shares accelerated over 4 percent to a new high of Rs 329 on Wednesday after CLSA upgraded the stock to "buy" from "outperform"  and Credit Suisse upped its rating to "outperform," citing strong growth prospects for Jaguar Land Rover, driven by the new Range Rover and Chinese demand.

"We believe the new Range Rover can drive a more than 10 percent ASP (average selling price) increase for the company over the next few quarters. Combined with Range Rover being a high margin product, we expect JLR's margins to expand 200 bps over the next few quarters," Credit Suisse analysts Jatin Chawla and Akshay Saxena said in a report.

Apart from Land Rover, luxury car maker Jaguar too has a slew of launches lined up, including the F Type, XF Sportbrake and all wheel drive models for US market, which will boost its utilisation levels to 85 percent from 70 percent and improve margins at loss-making Jaguar, the analysts added.

CLSA also feels that the company stands to gain from the new products lined up by Jaguar and Land Rover and a pickup in Chinese demand for luxury goods.

"The new Range Rover has seen a strong response with waiting lists of 3 months in most markets. The full volume boost from the new Range Rover will be visible fourth quarter onwards...Fears of a sharp drop in China demand and margins have receded and Chinese luxury outlook has started improving again," CLSA said.

The brokerage expects JLR's volumes to grow at a compounded rate of 11 percent over FY 2013-15. Tata Motors' domestic business remains under pressure due to sluggish demand for passenger cars and medium and heavy commercial vehicles.

CLSA says the India business will "struggle to stay profitable" in the near-term and it has "little hopes" for the passenger vehicle business, but the CV cycle is likely to improve by FY2015.

JLR currently accounts for as much as 90 percent of Tata Motors earnings, so its domestic business anyways doesn't have much impact on the stock.

Credit Suisse has raised its FY14 and FY15 estimates on Tata Motors by over 25 percent.  CLSA has upped its earnings per share estimates on Tata Motors by 5-8 percent for FY2014-15. It has also raised JLR volume forecast for the next two years by 3-5 percent.

CLSA and Credit Suisse have a target price of Rs 385 and Rs 390 on Tata Motors respectively.

The stock is already up 15 percent in the past three months, but it has underperformed peers like BMW, point out Chawla and Saxena of Credit Suisse.

At 11:00 hrs, Tata Motors shares were up 4.5 percent at Rs 328.40 on NSE.

Nachiket Kelkar
nachiket.kelkar@network18online.com

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