Moneycontrol News
Tata Motors shares rallied nearly 4 percent intraday Thursday following growth in US and domestic sales in February. While reiterating a buy call on the stock, Bank of America Merrill Lynch has raised its target to Rs 580 from 560 on higher volume estimates. As recovery becomes visible Q2FY18 onwards (EPS CAGR of 21 percent FY16-19), it expects the valuation multiples to expand as well.
The recent miss in earnings (due to forex) has impacted investor confidence; which should return as margin improvement becomes visible, the brokerage house believes. JLR has disappointed investors with weak margins for last two quarters, which led to the stock underperforming peers along valuation multiples contracting to cyclical lows. The stock fell 18 percent in last one month.
BoAML says forex hedging losses (that hit margins in Q3FY17) are likely to ease in FY18, although will likely remain high in Q4FY17. It feels pricing seems to have bottomed with US incentives already easing off.
According to its research note, new launches and refreshes (especially RR-Velar) are likely to act as a tailwind to overall volume growth and margins in FY18/19. With newly announced RR-Velar, it continued to forecast a 300bps recovery in JLR's EBITDA margin to 15 percent in FY18 and 16.1 percent in FY19.
JLR actively hedges its overseas revenues (45 percent of sales) on a rolling 4-year basis. As a result of these hedges, the weaker GBP hasn't translated into higher margins for JLR.
Based on its detailed assessment, the average hedge rate is likely to see a meaningful drop of 6 percent for FY18 and FY19 each (visible from Q2FY18 onwards), BoAML says, adding of the expected 250-300bps margin tailwind in FY18/19, it expects JLR to retain 100bps/150bps respectively.
Luxury car maker Jaguar Land Rover sold 9,231 units in North America during February, a growth of 16.4 percent compared with 7,921 units sold in year-ago month, which boosted by Jaguar sales.
Jaguar sales showed a whopping 130.4 percent increase at 3,484 units but Land Rover sales declined 10.4 percent to 5,747 units compared with same month last year.
On standalone basis, Tata Motors' sales increased 2 percent year-on-year to 47,573 units in February year-on-year, driven by passenger vehicles that grew by 12 percent due to Tiago.
Domestic sales increased 3 percent to 42,679 units while exports declined 5 percent to 4,894 units due to lower passenger vehicle shipment.
Overall commercial vehicle sales declined 1 percent to 30,407 units but medium & heavy commercial vehicle sales rose 1 percent due to pre-buying on account of expected price increase led by BSIV implementation from April 1.
At 11:30 hrs Tata Motors was quoting at Rs 464.95, up Rs 15.85, or 3.53 percent. Tata Motors DVR also rallied more than 3 percent.
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!
