Analysts positive on Tata Motors, weak China sales one-off

Retail volumes for JLR were up 3% y-o-y due to 23% y-o-y dip in China due to week-long Chinese New Year holidays

While Tata Motors fell over 2% intraday on the back of a lower than expected retail sales of its subsidiary Jaguar Land Rover (JLR) analysts continue to be positive on the prospects of the company.

Retail volumes for JLR were up just 3% y-o-y due to 23% y-o-y dip in China due to the week-long Chinese New Year holidays. However, if January and February sales are included, JLR grew a healthy 18% as compared to 13% in the December quarter.     

Given the one month aberration as well as wholesale data released today (JLR sales up 9% y-o-y) which was in line with analyst expectations, the stock has recovered a bit to end the day at Rs 300.

 

Though it is the first time that retail sales in China have fallen, analysts don't read too much given the New Year holidays, traction in other markets and the product line up. While Land Rover retail sales were flat, Jaguar sales across markets have been robust registering a 27% growth y-o-y.

Sales were boosted by XF Sportbrake and four-wheel drive versions of XF and XJ. New smaller engines and all-wheel drive options as well as the XF Sportbrake are doing well for Jaguar, say Morgan Stanley's Binay Singh and Shreya Gaunekar who are overweight on the stock.

While Land Rover sales have fallen, inventory thus far is not a concern.  "The company continues to run three shifts at Land Rover, and system inventory is low thus we would not extrapolate one month’s weakness and remain overweight on the stock," say the two analysts. Within the Land Rover portfolio, Freelander continues to post strong sales.

The next trigger could be launch of the new 2014 Range Rover Sports later this month in New York.

Kotak Institutional Equities which has a buy rating on the company, believes that JLR’s market share is likely to inch up on the back of higher capacity of Evoque (mini UV fastest growing luxury car segment) and strong demand, setting up a China plant and gaining from lower costs and success of new launches like Range Rover Sport and smaller Jaguar.