Moneycontrol Bureau
Shares of Tata Motors have gained 5.8 percent intraday Tuesday as the company is confident of reporting 0.5 million unit sales in FY16. The rally is in addition to 6 percent surge in previous session after strong Jaguar Land Rover's September sales numbers in the US.
"The management is confident of reporting 0.5 million unit sales in FY16 at present, signifying a monthly wholesale rate of 46,000 units for the rest of the fiscal (which is achievable), on the back of new launches and slight improvement in demand from China," says Antique Stock Broking that interacted with the management of company, prior to launch of Jaguar XE and Discovery Sport in China, coupled with XJ and XF refresh launches across markets.
It has reiterated buy rating on the stock with a target price of Rs 509 per share (reduced from Rs 583 earlier), implying 61 percent upside.
It believes future launches like Jaguar XE and Discovery Sport in China from October, Jaguar XE launch in the US from CY16, Jaguar XF and XJ refreshes in November are crucial to reach that figure (0.5 million sales).
Launch of Jaguar XE is expected to take monthly volume to around 6,000 levels by FY17, it says. For FY17, launch of Jaguar F-Pace SUV, Evoque convertible and the fresh utility-vehicle (UV) brand under LR positioned in between Evoque and Range Rover would be key volume drivers, other than XE being present across markets by then, it adds.
The brokerage feels led by the change in mix towards lower realisation products and price cuts in China & other markets like the US, Russia, Brazil etc, it would be tough for JLR to retain its 16-18 percent EBITDA margin levels going forward. It expects EBITDA margin for JLR to remain around 14-15 percent levels, coupled with around 8/4 percent blended price cuts in FY16/17, respectively.
On the back of muted volume growth, lower EBITDA margin and steady capex/sales of 14-16 percent, Antique expects JLR to generate negative free cash flow in FY16.
The management aims to treble Jaguar volume in FY15-18 through new launches, new 2-litre petrol model rollout and price rationalisation efforts.
According to Antique, maximising usage of common platforms across models, increase in usage of in-house 2 litre ingenium engines across models and demand recovery in China are key to a margin revival, though the management expects margin premium from China to gradually fade over the next two-to-three years on the back of rationalisation in pricing.
Extended weakness in China luxury car market even in FY17 and incremental weakness in economies like the EU and US are key risks.Additionally, JLR in UK has sold 14,669 vehicles in September, higher by 4.1 percent compared to 14,088 vehicles sold in the year-ago period, led by Jaguar.
Jaguar sales grew by 53.2 percent to 4,860 units while Land Rover sales dropped 10.1 percent to 9,809 units during the same period.
At 13:27 hours IST, the scrip of Tata Motors was quoting at Rs 330.85, up Rs 15.65, or 4.97 percent on the BSE.Posted by Sunil Shankar Matkar
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