Tata Motors’ share price up 4% as Jaguar Land Rover beats estimates; should you ‘buy’ or ‘sell’?

Tata Motors share price jumped 4% on Wednesday morning to Rs 141 apiece, despite the company widening its fiscal second quarter net loss to Rs 307 crore from Rs 187.7 crore a year ago. The optimism in the stock is driven by the outperformance in the Jaguar Land Rover business, according to analysts. Tata Motors shares have more than doubled since March 23, when stock markets hit their lows. The company has shown improvement in the figures on a quarter-on-quarter basis. Tata Motors revenue in July-September period rose from that in the preceding quarter, while its losses narrowed.

Consolidated statement for the July-September quarter shows that total income of the company improved to Rs 54,163 crore compared to Rs 32,589 crore in the previous quarter. Commercial vehicle sales jumped 12.6 times sequentially. Jaguar Land Rover’s retail sales were at 113,569 units in the quarter, up over 50% from the previous quarter. Jaguar’s EBITDA margin was at 11% which, analysts say, was a positive surprise.

Kotak Securities: Muted Outlook on Jaguar

Jaguar’s EBITDA was 31% above estimates pegged by Kotak Securities, which could be owing to higher net realizations because of a richer geographical mix (higher mix from China) and lower variable marketing expense, along with better-than-expected gross margins, and lower employee costs. “We maintain our SELL rating on the stock as we have a muted outlook for recovery in JLR volumes considering the weak global economy, a weak model launch pipeline and the Brexit event in CY2021E, which could have a material impact on the JLR business,” said Kotak Securities while pinning a fair value of Rs 120 on the stock.

Axis Securities: JLR risks could hurt Tata Motors

Analysts at Axis Securities noted that Jaguar’s retail market share in the global luxury car industry has declined to around 6.5% in the previous year as compared to 8-9% share. “JLR does not have attractive new model launches which can help it regain lost market share over the next 2-3 years,” said Axis Securities. Additionally, a no-deal Brexit could hurt the company going further. The penetration of EVs in markets in Europe, UK, and USA also poses a risk to Jaguar Land Rover, which could further affect Tata Motors. Owing to these reasons, Axis Securities advises investors to reduce their holdings in Tata Motors.

ICICI Securities: Investor confidence in Tata Motors

However, holding a contrarian view, ICICI Securities believes that consensus is discounting a relatively low success rate for JLR to remain self-sustaining and achieve meaningful deleveraging. “The enhanced management focus on FCF generation coupled with improving domestic business positioning in PV business are likely to rebuild investor confidence,” ICICI Securities said with regards to Tata Motors. With a ‘Buy’ rating ICICI Securities have increased the target price of Tata Motors to Rs 197 per share.