Is it good to buy Tata Motors despite JLR woes in China?

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

Choose Stock Exchange: BSE LIVE NSE LIVE

26 Aug, 2025 12:21

Volume

Todays L/H

More

×

Moneycontrol Bureau

Analysts are still bullish on Tata Motors despite Jaguar Land Rover’s (JLR) performance in China hurting April-June quarter. The British subsidiary’s Q1 net profit slipped 29 percent pound 492 million and revenue fell 6.6 percent at pound 5,002 million year-on-year on dismal performance in China. China's luxury car market accounts for 20 percent of JLR sales.

So, why are analysts still advising to buy the stock?

Maintaining a buy rating, CLSA says that while FY16 will be a weak year, FY17 should see a strong rebound in JLR’s volumes and profits as the ‘transition effect’ fades and platform rationalisation benefits start flowing through. It has set a target price of Rs 550 per share but slashed FY16-18 earnings per share (EPS) by 9-19 percent. It says that JLR's FY16 margins will be under pressure due to lower share of China in UK volumes, weaker product-mix, new model launch costs and China pricing pressures. Margins are expected to improve in FY17 on platform rationalisation benefits, weak commodity price, operating leverage benefitsfrom higher volumes in engine plant and lower new model launch spend.

"We now build in 13 percent China volume CAGR over FY15-18 and China margins converging with other regions. JLR (ex-China) and India business account for 80 percent of Tata’s consol EBITDA inFY16, where outlook is strong," CLSA says in a report.

Related stories

Nasrin Sultana

Special Correspondent|Moneycontrol.com

• 
  BSE IPO opens: Analysts bullish, say valuations attractive
• 
  Axis falls 7% on stress woes but analysts say 'worry not'
• 
  Infosys falls 5% post Q3; experts analyse if it is a bargain

Macquarie maintains outperform rating with a revised target of Rs 640 from Rs 700 apiece. It also expects JLR sales growth in China to turn positive but from Q3FY16 itself on the back of steps taken to revive sales of locally made Evoque and launch of new models. Tata Motors is its top pick in Indian auto sector and is a Macquarie Marquee recommended stock. The brokerage thinks steps taken by the company to revive Evoque sales and the launch of locally made Discovery Sport will uplift JLR sales.

“JLR has taken corrective steps like realignment of sales targets for dealers, a 5-6 percent cut in price of the locally made Evoque, changes in the sales and marketing organisation including new management and shorter payment terms for marketing payments to dealers," Macquarie says.

However, it has cut FY16/17 EPS by 8 percent.

Jefferies also maintains buy rating as it believes Tata Motors’ Q1 turned out to be decent relative to all the fears that were built in due to the weakness in China."Operating leverage, rather than pricing, was the reason for weak profitability, implying margins could potentially improve as production of the new models ramp up," it explains.

The brokerage has cut FY16E EBITDA estimates by 11 percent but raised FY17 by 3 percent.

However, UBS has downgraded Tata Motors to neutral on concerns of unlikely rapid recovery. It has reduced target price to Rs 424 from Rs 545 per share. It believes that a strong margin recovery from current levels is unlikely as benefit of Range Rover and RR Sport product cycle has largely played out and there is limited operating leverage in the system. According to UBS estimates, UK production may to grow at only 5 percent CAGR over next three years despite a strong pipeline of new launches due to transfer of China demand to Chery with localisation of models.

UBS has cut JLR EBITDA margin 16.2/16.6 percent in FY16/17 and decreased FY16/17 EPS by 16/12 percent, respectively. The brokerage expects India to get close to free cash flow breakeven by FY17 riding on commercial vehicle recovery.

At 09:48 hrs Tata Motors was quoting at Rs 388.65, down Rs 3.90, or 0.99 percent on the BSE.Follow @NasrinzStory