Tata Motors takes a target price hit from four brokerages

NEW DELHI: Analysts at top global brokerage firms have maintained their rating on Tata Motors, but scaled back their 12-month target prices a bit to factor in slowdown in the domestic business.


Analysts are of the view that Tata Motors is likely to benefit from strong volume growth at its Jaguar Land River unit, especially in China, which should offset declining sales in its domestic market.

Jaguar Land Rover ( JLR) is likely to provide much needed support to Tata Motors in FY14 as emerging geographies like South America, China, Russia etc. are expected to drive the revenues going forward.

Out of ten brokerages, four of them have scales back their recommendation or reduced their target prices, while UBS raised its 12-month target price to Rs 380 from Rs 326 earlier on Tata Motors post Q1FY14 results.

"The company is expected to continue its outperformance on the JLR front which is the chunk of their business. New launches such as the Range Rover launched couple of quarters back and the upcoming new Range Rover Sport along with the pipeline of new launches are supposed to put up a good volume performance," LKP said in a report.

LKP expects a 14%/12% JLR volume growth in FY14E/15E and some revival in the domestic MHCV business on economic recovery. However, with short to medium term pain in this business, we are cutting down our earnings estimates by 10% for both FY 14E/15E, added the brokerage firm.

The brokerage firm has slashed the target price now from Rs379 to Rs 354 while maintaining our BUY rating on the stock.

For the quarter ended June 30, Tata Motors reported a consolidated net profit which fell by 23 per cent to Rs 1,726 crore from Rs 2,244 crore in the same period last year.

However, JLR performance was the focus area as usual with sales growing by 8.5% YoY to 90,620 units as geographies like China, UK and ROW showed a good traction along with improved sales performance at Jaguar brand.

JLR also posted a very good margin performance with EBITDA margins coming at 16.5% on improved product mix, softening commodities and cost control.

Most analysts remain positive on Tata Motors, as they expect volumes to remain healthy on the JLR front and weak rupee should be able to aid margins.

"We see this surprise coming from more sales in China and strong response to new launches, which should command premium pricing," Morgan Stanley said in a note.

"We continue to be positive on Tata’s JLR brand, as we believe its earnings will surprise on the upside as the new RR Sport comes through. Tata Motors remains our top pick in the Indian auto space," added the note.

We have collated recommendations from various brokerages on Tata Motors’ 12-month target price and their respective rating: