Tata Motors has moved up nearly 20% from Rs 203 on July 26, 2012 to the current Rs 250 levels, beating the Nifty, which has gained 7%.
CLSA in a report on the company has said that the market is not factoring in the developments at Tata Motors’ UK subsidiary Jaguar Land Rover. JLR will start the third shift at the Halewood plant, which will add to the company’s volumes over the next few months. According to CLSA, the market is not building in these growth numbers. Also, JLR will be launching the new Range Rover platform.
Though it is difficult to judge the success of the forthcoming Range Rover vehicles, the correction in the stock price since April 2012, when the stock touched a high of Rs 309, seems to be pricing in moderating industry growth and lower margin outlook, says the CLSA report.
Tata Motors will also be launching Range Rover Sport in early FY14, which will be replacing the existing seven-ten year old models. Initial media reviews of the new Range Rover have been positive. CLSA believes the new vehicle will have a better operating margin than the existing one.
The Halewood plant will be adding a third shift. This plant manufactures the top selling Evoque and Freelander. The addition of the third shift is an indication that the model is witnessing renewed demand, against market expectation of a flattish growth. The third shift will add around 23,000 to 30,000 vehicles every year.
If the new products are successful, CLSA expects increase in volume by around 40% of these models, resulting in an additional 11% jump in net profit. In this case, the stock has a higher probability of touching Rs 300 levels.
While luxury cars sales have been impacted by the slowdown, Tata Motors has enough buffers in place. The company is still adding dealers in China, unlike other companies that already have a well-developed sales network in place in the country.
CLSA has maintained an “outperformer” rating on Tata Motors as it expects JLR to grow faster than the industry on account of new launches and growing marketing network in China.
