Tata Motors extends gain as JLR reports strong retail sales in May

The stock was up 2.4% to Rs 312, extending its past two days 7% rally on the BSE.

Tata Motors was up 2.4% to Rs 312, extending its past two days 7% rally on the BSE, after Jaguar Land Rover (JLR) reported total retail sales of 48,281 vehicles in May 2018, up 6.1% year on year. The growth for JLR (Ex-China geography) stood strong at 11% YoY which has been highest growth in last 14 months.

The sales growth was primarily driven by the introduction of new models including the Range Rover Velar, the Jaguar E-PACE and the new Land Rover Discovery, Tata Motors said in a statement.

Thus far in the calendar year 2018, Tata Motors had underperformed the market by falling 34% as compared to 2.5% rise in the S&P BSE Sensex till Tuesday, June 5, 2018.

Analysts at Elara Capital believe Tata Motors is currently pricing in extreme pessimism of a flattish volume growth for JLR for FY19E.

“We have factored in a volume CAGR of 7% over FY19-20E for JLR. YTDFY19 retail volume growth for JLR stands at 9% with China yet to bounce back; while we remain watchful of Europe (-9% in YTDFY19) and UK growth sustainability (+23% YoY). The mgmt in their India business analyst meet too highlighted their path to sustained FCF and achieving EBIT margin guidance of 3-5%,” the brokerage firm said in company update.

We believe the risk: reward for Tata Motors at current levels is extremely favorable and recommend Accumulate with a target price of Rs 362, it added.

Analysts at Prabhudas Lilladher also maintain “BUY” rating on Tata Motors with a target price of Rs 378.

“We welcome the increased disclosures and disinvestments from loss‐making/noncore subsidiaries. Management’s focus on improving the performance of the standalone entity is now clearly visible and we expect it to continue. The near‐term outlook for JLR, however, remains muted both for volumes and profitability, EBIT margin target of ~7‐9% (earlier 8‐10%) mainly due to accelerated product development expenses. With JLR’s full product range available in EV/Hybrid variants from 2020 gives us further confidence. Given the attractive valuations and buoyant management guidance, we maintain ‘buy’ rating on the stock,” the brokerage firm said in recent report.