Tata Motors slips 2.8% on JLR capex plans; use dips to buy, say analysts

NEW DELHI: Tata Motors slipped as much as 2.8 per cent on Thursday and was also the top loser on Sensex. This, after the firm said that the capital expenditure at JLR would be increased to £3.5-3.7 billion.

Even though the global giant’s UK subsidiary reported strong sales for November, higher capital expenditure is perceived by some as straining companythe ’s cash flows over the short term.

At 10:50 a.m.; Tata Motors recouped some losses and was trading 2.2 per cent lower at Rs 369.50. It hit a low of Rs 367.15 and a high of Rs 377 in trade today.

According to analysts, even though the domestic business is likely to remain under pressure, JLR business is likely to lend much needed support. Hence, investors should use every dip to accumulate or buy the stock.

“I would look at this as an opportunity to accumulate with a medium-term perspective,” said Ajay Bodke, Head-Investment Strategist & Advisory, Prabhudas Lilladher, in an interview with ET Now.

“Essentially, the domestic business continues to languish and there are no signs whatsoever of the commercial vehicle segment indicating any growth,” he added.

However, he still believes that global growth is still a quarter or two away from bottoming out, so one needs to look at Tata Motors with a positive frame of mind in the medium term.

Tata Motors has said that the capital expenditure at JLR will be increased to £3.5-3.7 billion in FY15 from £2.75 billion planned earlier.

The company intends to continue its investment plans towards new product development, new powertrains and technologies to meet regulatory requirements, capacity expansion at its UK facilities and setting up of new plants in China and Brazil.

“While increased thrust on R&D, new product development and capacity expansion is essential for JLR to sustain its strong growth momentum and is expected to be positive in the long run; we believe that in the near term it will strain the company’s cash flows,” Angel Broking said in a note.

“Going ahead, we expect headwinds in the standalone business to continue in FY2014 due to weak macro-economic environment, which is expected to continue impacting the domestic volumes,” added the report.

Nevertheless, the brokerage firm expects JLR to sustain its strong performance driven by continued momentum in the global luxury vehicle market, success of the recently launched models and strong product launch pipeline.

Angel Broking retains their positive view on Tata Motors and recommends an ‘accumulate’ on the stock with a revised target price of Rs 410.

Over the long term, JLR intends the capital spending to be around 10-12 per cent of net sales (as against current levels of 15-17 per cent), which is broadly in line with global peers.

JLR witnesses strong month in November:

Jaguar and Land Rover (JLR) witnessed strong volume growth in retail sales yet again in November 2013, posting a better-than-expected growth of 25.1 per cent YoY and 9.7 per cent MoM to 37,403 units.