More analysts turn bullish on Tata Motors

Tata Motors’ strong third quarter financial performance has enthused analysts and broking houses.

On Tuesday, the Tata Motors stock rallied to an intra-day high of ₹382.45 before settling at ₹374.3, up 2.8 per cent over the previous day's close.

After market hours on Monday, Tata Motors announced that its October-December net profit tripled on strong demand for its luxury Jaguar Land Rover vehicles. The consolidated topline at about ₹63,900 crore was ahead of estimates while reported profit after tax at ₹4,800 crore was miles ahead of Street estimates.

A rich model mix in the quarter was driven by the new Range Rover and Range Rover Sport, which accounted for 31 per cent of total volumes, compared with 21 per cent last quarter.

Mukesh Saraf of Spark Capital said: “We expect these models to continue driving volume growth in FY15 and maintain nearly 30 per cent proportion before falling in FY16, on the back of volume jump from the smaller Jaguar. We expect geographic mix also to remain favourable with China recording 45 per cent y-o-y growth in the quarter, followed by North America at 24 per cent and rest of world at 30 per cent.”

India Infoline analyst Prayesh Jain said, Tata Motors has seen a correction of 10 per cent in the past two months on the back of marked slowdown in its domestic sales. “News flow from JLR regarding higher capital expenditure leading to negative cash flows for FY15 added to the negative sentiment. While we expect revival in its domestic performance in the medium term, negative cash flows for FY15 does not concern us much as over the longer term we expect it to generate robust free cash flow,” Jain added.

ICICI Securities expects the margin profile to remain robust as volumes continue on a strong footing aiding capacity utilisation and product mix shifts towards higher ASP (average selling price) products. “We maintain our bullish outlook on JLR’s business performance sustenance. With some uptick in the India business, going ahead, the drag on the overall performance will also reduce,” it added.

According to Kotak Securities, Tata Motors standalone business is expected to continue reporting losses for some more quarters. New launches, improving geography mix and favourable product mix are expected to keep JLR’s profitability growth healthy.

Antique Stock Broking analysts Ashish Nigam and Saksham Kaushal in a report said: “An exciting phase in the product lifecycle is the strongest volume growth catalyst for an auto company. For JLR, with most platforms witnessing a substantial upgrade after a long hiatus, its product lifecycle is at its sweetest spot.”

Analysts cite significant slowdown in China, delayed revival in demand, high interest rates, and commodity prices as key risks for Tata Motors.