CLSA ups Tata Motors to 'buy' as JLR volumes surprise

Moneycontrol Bureau

Tata Motors' domestic passenger car business had a bumpy ride in 2011-12 (April-March). But its luxury Jaguar and Land Rover unit has seen strong sales growth overseas, especially since the launch of the Range Rover Evoque crossover. This has prompted CLSA to upgraded Tata Motors to a "buy" from its earlier "outperform" rating.

"JLR's volumes have continued to surprise on the upside with Feb and March volumes coming in 5-16% above estimates boosted by strong Evoque demand. Rising proportion of China in volumes, operating leverage benefits and stable currencies have also improved margin outlook for JLR," analysts Abhijeet Naik and Nitij Mangal said on Tuesday.

Tata Motors group global sales in March accelerated 26% year-on-year to 1,39,655 units in March. Its global commercial vehicle sales rose 12% and passenger vehicle sales surged 41% in March. For the full year, Tata Motors' global sales were up 16% to 12,52,173 units.

JLR sales, meanwhile, jumped 51% to 36,471 units globally, with Jaguar sales up 42% and Land Rover up 53% in March. JLR sales rose 29% to 3,14,433 units last fiscal.

The analysts said industry premium vehicle demand remains strong and more importantly industry sales in China were also strong over Feb and March, which should allay concerns of slowing demand, mainly in China.

The brokerage has raised its volume outlook on JLR by 7% for fiscal 2013 and 2014 and also expects JLR EBITDA margins will now be around 18.6%, versus 17.5% earlier.

Apart from JLR, Tata Motors sales of passenger cars and light commercial vehicles in the domestic market are also on an uptick, which augurs well for FY13.

"India LCV volumes have improved substantially in the second half of FY12 and we expect strong growth in FY13, backed by higher capacity at the Pantnagar and Dharwad plants," Naik and Mangal said.

The CLSA analysts upgraded Tata Motors' EPS (earnings per share) estimates for FY13 and FY14 by 16-18% and anticipate EPS upgrades by other brokerages too in coming weeks.

CLSA has a target price of Rs 370 on Tata Motors. The stock was up 0.4% at Rs 301.95 on NSE in morning trade.