Tata Motors up 10%; analysts bet on JLR sales, India biz post Q4

In the analyst meet and concall, Tata Motors/JLR management sounded optimistic on delivering strong volume growth in China and the US. They sounded confident on RR/RR Sport outlook as well despite the weak April numbers for these models, says CLSA.

JLR is seeing strong demand for its new models – Discovery Sport, XE and F-Pace. The recently launched small car, Tiago, in India has seen a good initial response too, with 20,000 orders so far.

Credit Suisse remained bullish on the stock and assigned outperform rating with increased target price of Rs 530 (from Rs 470 earlier).

"We continue to like Tata Motors for strong double-digit growth at JLR and believe there is a likelihood that JLR can surprise further on margins. F-Pace, which has seen a very encouraging response across markets, should be the key driver for volume growth in FY17 (like Discovery Sport and XE in FY16). With margins likely to hold up at current levels; FY17 should witness strong around 20 percent EBITDA growth at JLR. Valuations at around 2.5x FY18 EV/EBITDA are attractive," Credit Suisse explains.

Tata Motors' Q4 earnings beat analysts' expectations on all counts. Consolidated profit jumped 3-fold to Rs 5,177 crore, boosted by exceptional gain of Rs 555 crore (due to insurance proceeds received for Tianjin blast), stellar JLR growth (including China share) and revival of India business. Operating profit (EBITDA) grew by 35 percent against forecast of 21 percent rise.

JLR's profit shot up 56 percent to 472 million pound YoY (with 180 bps margin expansion QoQ and 5 percent QoQ rise in realisations) and its China joint venture reported a healthy profit of 49 million pound. Standalone (domestic business) profit stood at Rs 465 crore against loss of Rs 1,164 crore YoY.

A CNBC-TV18 poll had estimated consolidated profit at Rs 3,602 crore and loss on standalone basis at Rs 109 crore for the quarter.

Morgan Stanley rated overweight with price target of Rs 476, saying it is a top pick in auto.

It further says strong free cash flow from JLR turned the group balance sheet to net cash and the company reinstated its dividend, which both could fuel re-rating. After capex of 3.1 billion pound, JLR posted positive free cash flow of 731 million pound.

JP Morgan also reiterated its overweight rating with increased target at Rs 485 (from Rs 440) as it believes new model launches (including F Pace, XE) at JLR will drive double-digit growth in FY17 and an improving environment in India will drive sales in the local business.

The brokerage says while the commercial vehicle cycle is on an upswing, management expects to regain market share in Medium & heavy commercial vehicle to 60 percent (up from 56 percent currently).

Deutsche Bank has raised its FY17/18 EPS forecasts by 10-12 percent and target price by 11 percent to Rs 360 but maintained hold rating as it expects margin to normalise in the coming quarters and model mix to weaken.

According to the brokerage, better-than-expected volumes from new model launches, stable pricing in key markets and a depreciating GBP are upside risks.

Any increase in discounting trends by luxury OEMs, any development relating to Brexit, a growth slowdown in Tata Motors' key global markets and higher pricing pressures would be downside risks, feel brokerages.

At 12:08 hours IST, the scrip of Tata Motors was quoting at Rs 453.65, up Rs 33.10, or 7.87 percent amid high volumes on Bombay Stock Exchange.Posted by Sunil Shankar Matkar