Decline in Land Rover US sales a concern for Tata Motors: LKP

The 2 percent decline in Land Rover sales in the US in April could be a matter of concern for Tata Motors, says Ashwin Patil of LKP Securities.In an interview with CNBC-TV18, Patil said that the US has been going through a slowdown due to the upcoming presidential elections which may have lead to a drop in sales. He suggested buying Tata Motors with a target of Rs 490.Patil remained negative on TVS Motor, saying its marketing and advertising costs are bogging down its margins.Below is the verbatim transcript of Ashwin Patil’s interview with CNBC-TV18's Ekta Batra and Anuj Singhal.Ekta: First on Tata Motors, April US sales were down around two odd percent. What disappointed you more, that Jaguar didn\\'t grow beyond one percent or Land Rover in fact declined two percent?A: The decline in Land Rover is a bit of a concern as far as Jaguar is concerned. The contribution from Land Rover is much more than Jaguar in the overall JLR sales and for US also the same story is applicable. So, two percent fall is not that great. Yes, the way Tata Motors JLR sales were moving up over the past few months two percent seems to be a bit of an aberration and maybe like markets are concerned because of that, because the trajectory that the company was having in these markets was really great and a two percent fall is a bit of a concern but we think that month of April is generally not so great month. It is a weak month as far as the auto sales are concerned towards the globe.So, maybe like we need to wait for a month or two to see exact trend what is happening in the US markets. But there are some news in the markets that US is entering into a slowdown with this presidential election coming up and all. So, maybe because of that - that has impacted a bit the JLR sales in the US. But the European markets as well as the other western markets and even they are performing well. China also we are seeing a recovery in the form of utilisation rates of Chinese joint venture (JV) with Chery Automobile moving up and the localisation content is increasing and there is demand for the locally produced vehicles like Evoque etc. The new launches that have happened over the past few months like the Discovery, the Range Rover Sport etc are doing really very well, the F-type on the Jaguar space. So, not much of a concern at this point in time but markets definitely may see this as a bit of negative on the short term basis.Anuj: So, that is the follow up. In the short term we have seen a bit of a downward take on Tata Motors, if this is not an aberration and if we see more of such data from the US in particular do you think Tata Motors runs risk of correcting, say 10-15 percent even from here on?A: Yes, we can say that because US is one of the most important geographies for JLR about 20 odd percent sales come from US market. So, it would be a bit early to say at this point in time and a bit harsh that we will be seeing that kind of a fall in the Tata Motors numbers or the stock price. But you never know, we need to wait for a month or two and if that continues then we may see that kind of a fall that which we are seeing.Ekta: TVS Motors, how did you read the margins, and the commentary?A: The margins have not been really great. 6.3 percent margins nobody had expected. We all were expecting at least close to about seven odd percent but they have incurred about Rs 55 odd crore on the marketing and advertising front and that is one of the reasons why Q4 margins have really disappointed everyone. But going forward that with the new launches coming up still they will be incurring marketing expenses and that has been traditional story for TVS that we have seen over the past few years, many years I should say.About six to seven percent of the net sales are going on the marketing side or the advertising side and that has been the story of TVS and currently also they are repeating the same thing. The 6.5 percent margin were like the company has not been able to move above that. Just a couple of quarters they went above seven percent and now again the same story. So, we are not very much positive on the stock and the competition is also building up in the two wheeler space. So, we are neutral with a negative bias on the stock.