US tax could halve Tata Motors’ EPS: Deutsche Bank

MUMBAI: Deutsche Bank has estimated that the proposed border tax adjustments in the United States could hit automaker Tata Motors' earnings per share (EPS) by 50%.
In a note released last Friday , the bank said an analysis of border tax adjustments being proposed under House speaker Paul Ryan's “Better Way“ tax reform plan in the US indicates significant negative impact for auto makers that rely on import of components or fully built cars for sales in the US.

In Tata Motors' case, the US accounts for 20% of subsidiary Jaguar Land Rover Automotive Plc's global volumes. This volume is exported from the UK and there is no assembly in the US, said Deutsche Bank.

Under the proposed border tax adjustments, cost of an average vehicle could increase by $2,300, while JLR could face an impact of $9,000 per vehicle on its US volumes, the bank said.

“If we assume no price hikes, this could result in Tata Motors' consolidated EPS declining by 50%,“ it noted. On Monday , shares of Tata Motors ended up 0.5% at `525.3 on the BSE.

Tata Motors' consolidated EPS on a trailing basis is `40.84. JLR achieved its best ever December sales performance in 2016, with total retail sales rising 12% from the previous year to 55,375 vehicles.

The bank said absolute level of impact will be known only when final proposals are announced, and retained `buy' rating on the Tata Motors stock with a target price of `575. With JLR sales in top gear, Tata Motors shares have gained 62% in the last one year, outperforming the BSE Auto index which has gained close to 34% in the same period.