Tata Motors climbed above Rs 200 levels, largely due to low valuations, but analysts are not convinced yet to buy the stock due to its high inventory levels in China, Brexit issues and concerns over its overall growth.
Tata Motors has surged 27 percent since February 19, making it one of top five gainers among Nifty50 stocks in the current market rally.
The stock reclaimed and started trading above the psychological Rs 200 level on April 2 for the first time since November 2018. During the session, the stock rallied as the company said it expects improved earnings performance in March quarter and an increase in cash flow from operations.
Despite the surge, analysts are not yet convinced to buy the stock due to its high inventory levels in China, Brexit issues and concerns over its overall growth.
While having a neutral call on the stock, Naveen Kumar Dubey, Research Analyst at Narnolia Financial Advisors told Moneycontrol that he will look at March quarter earnings before taking a further call on the stock because of global concerns.
"The current rally is on account of low valuation and incrementally improved guidance. Going forward important trackable for the stock are: Higher inventory levels in China and Europe, and uncertainty regarding Brexit (plant could be shut for 2-3 weeks in April 2019)," he said.
According to him, EBIT margin is expected to be marginally negative in FY19 but will go up to 3-6 percent by FY20-22.
AK Prabhakar, Head - Research at IDBI Capital Markets & Securities also believes lower sales from China region (down 33 percent YTD) would continue to have lower EBIT margin.
He also believes Brexit issue and currency fluctuations would impact JLR performance. "We maintain a cautious view on stock and like to stay away as Tata Motors hold multiple risks."
Prabhakar, however, likes Hero MotoCorp as he believes buying the stock at Rs 2,500 level would be a very good value buy.
"Strong balance sheet, leadership position in motorcycle segment and cheap valuation (trading at 12x one year forward vs historical avg of 15x) would provide more cushion," he reasoned.
Recently S&P Global Ratings downgraded the credit rating of Tata Motors and its wholly-owned subsidiary Jaguar Land Rover (JLR).
However, Sameer Kalra, Founder & President (Research) at Target Investing is positive on the stock, saying the worst is behind. He already has a buy rating on the company.After crossing Rs 200, he said he would still keep its buy call as there is a massive depression in the valuations due to over-emphasis on previous financial performance and global outlook.Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more.