Street bullish on Tata Motors post Q1; JLR to drive growth
Analysts say JLR's performance in the quarter, especially 16.5 percent margins, was once again positively surprising and expect the strong growth to be maintained if not improved on the back of successful product launches.
August 08, 2013 / 16:39 IST
Moneycontrol Bureau
Tata Motors, may be India's largest commercial vehicle maker, but the first quarter results once again proved that that a slump in the domestic business is not much of a concern as long as its luxury Jaguar Land Rover unit in Britain continues to surprise with its strong performance.
The India's largest commercial vehicle maker reported a lower-than-expected 23 percent year-on-year drop in April-June quarter consolidated net profit at Rs 1,726 crore, on the back of Rs 395 crore operating loss in the standalone operations. However, most analysts remain bullish on the stock, banking on JLR driving growth.Tata Motors' standalone business is struggling amid a slump in demand for trucks and buses on the back of the overall economic downturn and slow demand for passenger vehicles.Ravi Pisharody, the company's ED, told reporters on Thursday evening that the slowdown in the CV industry was more prolonged this time, and there were still no green shoots visible ahead.Also Read: Tata Motors sees no signs of turnaround in domestic truck biz However, the disappointing standalone results were overshadowed by JLR performance, where net profit surged 29 percent to GBP 304 million, and revenue rose 13 percent to GBP 4,097 million. Margins at 16.5 percent too surprised positively, said many analysts. "JLR continues to surprise the street with improvement in EBITDA margin as new model launches start increasing in the product mix. Jaguar volumes have ramped up significantly post new launches of XF, 2 liter engine in XJ and F-Type. Range Rover demand remains robust and product mix has been improving post the launch of these new models," said Kotak Institutional Equities.It has a "buy" rating on Tata Motors with a target of Rs 355 on the stock. Kotak expects, JLR volumes to grow at a compounded rate of 17 percent over FY2014-16, with a EBITDA growth of 20 percent.ICICI Direct.com, the retail broking arm of ICICI Securities, also advised investors "buy" the stock saying, they were positively surprised by JLR's robust performance and believe from here volume march across geographies will help at least maintain margins if not make it rise further."We continue to maintain that JLR deserves further re-rating than currently attributed as the market is underestimating its potential to deliver consistent growth, valuing it at EV/EBITDA multiple of 3.5 times," it said.Motilal Oswal also has a "buy" on the stock with a target of Rs 370. "We believe JLR is on the right strategic path and is investing in the right areas, resulting in its evolution to a much stronger and balanced player in the luxury vehicle market. Domestic business, though currently under pressure due to cyclical pressures in the economy, could bounce back strongly along with economic recovery," it said.Amongst the foreign brokerages, Goldman Sachs, Bank of America Merrill Lynch and CLSA also maintained their "buy" rating on Tata Motors, while Macquarie expects it to "outperform." "JLR shines again, India business may not worsen," said Merrill Lynch.CLSA said JLR's performance was "solid" in a transitional quarter and expects margins and profit to climb higher in the current financial year as the full benefit of its new product launches flows through. At 11:15hrs, Tata Motors was up 0.4 percent at Rs 280 on NSE. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
