Deutsche Bank downgrades Tata Motors, cuts target by 21%

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26 Aug, 2025 12:21

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Deutsche Bank has downgraded Tata Motors to hold and slashed target price by 21 percent, citing weak volume & mix in China and concerns like higher incentives in US.

The brokerage says its downgrade is premised on a greater-than-expected delay in China volume ramp-up (down 33 percent year-to-date) for Jaguar Land Rover (JLR), likely deterioration in profitability of ex-China markets (US incentives up 50-100 basis points Y-o-Y in July/August), and faster-than-expected model mix deterioration.

Its forecasts continue to factor strong volume growth for JLR (FY15-18E CAGR of 13 percent) driven by new models. However, it believes that the impact on margins (down 290 basis points by FY18) and free cash flow will be stronger than earlier anticipated. Hence it cut earnings per share forecasts by 17-23 percent and target price by 21 percent to Rs 375.

After the announcement of volumes for July/August by Jaguar Land Rover, the brokerage now cut its FY16 growth to 19 percent. However, it still forecast a strong rebound in FY17, but it is likely to happen on the back of weaker mix that should affect pricing.

The UK subsidiary reported August 2015 retail sales of 29,327 vehicles, down 3 percent year-on-year. Year-to-date China sales was down by 29 percent.

The brokerage says JLR’s new model launches (XE, Discovery Sport, F-Pace) should enable it to address 70 percent of the global luxury market against 48 percent earlier.However, this coincides with a normalisation of demand/pricing in China and a shift in mix towards lower priced and more competitive segments (share of Jaguar expected to increase from 16 percent to 26 percent), it feels.

While it forecasts a volume CAGR (FY15-18E) of 13 percent, EBITDA is expected to remain flat during this period.

According to Deutsche Bank, upside risk is better-than-expected China volumes while downside risk is failure of new models.

At 09:56 hours IST, the scrip of Tata Motors was quoting at Rs 336.45, up Rs 2.50, or 0.75 percent on the BSE.Posted by Sunil Shankar Matkar