Tata Motors tanks over 14% in two trading sessions

NEW DELHI: Shares of Tata Motors Ltd continued their southward journey for second day in a row on Thursday after the global giant reported a steep decline in operating margins at JLR which ignited concerns over the sustainability of the auto firm's recent rapid growth.

Shares of Tata Motors tanked nearly 12 percent on Wednesday. “The fall wiped out Rs 8,700 crore in market capitalisation on Wednesday,” an ET report stated.

At 11:28 a.m., the company’s shares were trading 2.6 percent lower at Rs 236.75. The stock has hit an intraday low of Rs 233.30 and a high of Rs 239.10.

Although Tata Motors posted a massive 136 percent surge in consolidated net profit to Rs 6,234 crore, making up for a subdued performance in India, analysts are of the view that the long-term story for the global giant is intact, but near-term headwinds will weigh on the company.

A near-term concern for the company is on the margins front. A significant rise in the cost of raw materials and employee cost has led to a 30-basis point dip in operating margins for the year, according to analysts.

The EBIDTA margins for Q4 declined marginally by 30 basis points to 14.3 percent, when the market expected a jump of over 100 basis points.

"Tata Motors disappointed the Street with putting out JLR margins at 14.5 percent versus Street's overoptimistic estimate of 19 percent and our cautious estimate of 15.5 percent. Higher other expenses and adverse product and geography mix led to this fall," Ashwin Patil - Equity Research Analyst at LKP Securities Ltd, said.

Brokerage Calls:

Emkay retains its 'accumulate' rating on the stock with a target price of Rs 322. Strong volumes remain the near term trigger.

LKP Securities Ltd maintains its 'buy' rating on the stock as it looks even more attractive post the beating it got today. However, LKP has brought down its target price close to Rs 300 from its previous target of Rs 320.

UBS cut its 12-month price target for Tata Motors to Rs 270 from Rs 320, maintaining its 'sell' rating after the Indian automaker's weaker-than-expected operating earnings. UBS believes volume growth for unit Jaguar Land Rover could "incrementally disappoint".

JPMorgan slashed Tata Motors estimate for domestic volumes because of the slow commercial vehicle cycle on account of adverse currency movement and slower growth in Chinese markets. It had cut the target price to Rs 302 from Rs 320.

Standard Chartered in a report has said that macro headwinds in Europe and the slower-than expected ramp-up at China are likely to impact JLR's volumes in FY13. They have downgraded the stock to In-Line from overweight with a revised target price of Rs280 earlier Rs316.

Technical View: Ranajit Kumar Saha, Sr. Manager- Technical Research, Microsec Capital Ltd

Tata Motors Ltd is in continuous uptrend since last August 2011. The short-term crucial supports and resistance of the stock are Rs 262 and Rs 286, respectively.

A breach of 286 is likely to take the stock higher to 301. We recommend holding long positions in the stock with stop loss of Rs 262.

(The views and recommendations expressed in this section are the analysts' and do not represent those of EconomicTimes.com)