Since the start of this calendar year, the Tata Motors stock on the BSE has declined 19 per cent to Rs 345.90 (a 52-week low), against a decline of about nine per cent in Maruti Suzuki’s scrip and 2 per cent in Mahindra &Mahindra (M&M)’s.
The decline has come in spite of a turnaround in Tata Motors’ standalone (domestic) business; it reported a small profit in the December 2017 quarter, incurring losses for five quarters. The firm has climbed one position to fourth spot in the domestic car market this year, surpassing Honda Cars. It is regaining the commercial vehicle market share it lost in recent years.
The key concern, however, appears to be on the JLR (Jaguar Land Rover) front. The UK-based luxury car arm of Tata Motors brings 80 per cent of the consolidated revenue. In the third quarter of FY18, the pre-tax profit of JLR declined to £192 million from £255 million a year ago (which included $85 million insurance recovery). The firm said profitability at JLR was impacted by the run-out of certain models, higher depreciation and amortisation, resulting from continued investment.
Source: BSE as of March 8
Volume growth has also been a challenge at JLR. The February retail volume of JLR declined 2.6 per cent to 39,911 units, while the January-February numbers are up only 0.3 per cent to 88,977 units. A recent concern has also come on account of the proposed increase in duty on European cars by the US, the second biggest market for JLR cars produced in Europe.
Kotak Securities after the Q3 results said JLR volume growth was expected to remain tepid in the near term. “JLR’s volume performance has been subdued in the US, the UK and Europe. In the near term, year-on-year volume growth is expected to stay tepid, given certain challenges like diesel tax in the UK and market cyclicality. Higher depreciation, increased tax provision and lower profit from the China joint venture dented profits during the quarter,” it said.
Kotak reduced its target price for the stock down to Rs 477, against Rs 514 after the Q3 results were announced.
Bharat Gianani, auto research analyst at Sharekhan, said the commentary on the US and European markets, JLR hedge book position and quantum of forex losses anticipated would be key monitorables for JLR.