Tata Motors jumps on strong Q3, analysts raise estimates

Tata Motors shares accelerated over 7% on Wednesday as the street cheered the India's largest commercial vehicle maker's significantly better-than-expected consolidated growth in the third quarter.

The company had on Tuesday reported a 40.5% year-on-year rise in consolidated net profit at Rs 3,405.6 crore, while revenue surged 44% to Rs 45,260.3 crore in the October-December quarter. This was better than analysts' expectation of a profit of Rs 2,500 crore on revenue of Rs 43,365 crore, according to a CNBC-TV18 poll.

The strong growth in the third quarter, was mainly boosted by its UK-based luxury Jaguar Land Rover unit. JLR, which accounts for a majority of Tata Motors' profits and revenue, saw 57% rise in profit and 41% rise in revenue, on the back of strong demand for new models like the Range Rover Evoque in markets like China.

However, the standalone results "disappointed" many. The standalone net profit in the third quarter slumped near 58% from a year ago to Rs 173.7 crore due to rising costs and foreign exchange losses, even as revenue rose 18% to Rs 13,337.9 crore.

Several analysts raised their sales and earnings forecasts for fiscal 2013, banking on robust growth at JLR. However, the stock has appreciated 71% since September 30 and over 25% in the last month alone, which leaves limited room for upside, they say.

Here's a look at how analysts viewed Tata Motors' third quarter performance and the road ahead:

CLSA: Tata's strong third quarter results highlight the multiple positive tailwinds that continue to boost JLR’s earnings, most of which are likely to remain in place in the near term. India results were expectedly weak but do not matter much. We upgrade FY13-14 consolidated EPS (earnings per share) expectations by 14-18%. Rating: Outperform. Target: Rs 310.

Edelweiss: EBITDA margin at 20% in JLR was way ahead of our expectation of 15%. This performance places JLR in the elite league of most profitable automobile companies in the world. However, sustainability of such margins is a big question mark as the company has benefitted from pound and euro depreciation. Rich valuation seems to cap the upside potential of the stock price. Rating: Hold. Target: Rs 272.

Emkay: Given the strong volume momentum in JLR led by Evoque, we increase our volume estimate for JLR by 8.5%, 17.8% in FY12, FY13. We factor in 19% YoY growth in JLR volumes for FY13. Hence, our consolidated net sales are revised upwards by 10%, 16% in FY12, FY13. Rating: Cut to Accumulate from Buy post strong run up in stock price, rising expectations from JLR and lack of support from standalone business. Target: Rs 310.

Quant: JLR results were ahead of estimates by big margin, but standalone disappointed. We increase our consolidated profit after tax estimates for FY13 by 20%, led by 12% increase in JLR volume estimates and 100 BPS increase in JLR margins.  Rating: Accumulate. Target: Rs 304.