Thus far in the calendar year 2018, Tata Motors underperformed the market by falling 41%, has seen market capitalisation erosion of Rs 547 billion at Rs 822 billion. On comparison, the S&P BSE Sensex was up 4.7% during the period.
Analysts at Prabhudas Lilladher expect volumes for JLR to be subdued over the next few quarters due to global headwinds and uncertainty over diesel engines, however the brokerage firm believe the management’s aggressive cost reduction efforts would enable JLR to achieve its stated near term EBIT margins of 4-7% over FY19-21.
Overall it seems capex will remain elevated for the next 3 years and hence free cash flow at JLR will remain weak hence constraining valuations. Tata Motor’s more immediate investment case then rests on a faster than- expected turnaround in India business on the back of growth and market share gains in CV business and net debt reduction, according to analysts at JP Morgan.
JLR faces challenging operating conditions given negative sentiment on Diesel in the UK/EU, higher incentives and elevated investment spending partly offset by higher growth in China. The India business (50% of SOTP) is clearly showing signs of improvement but reflation here may not be enough to offset the profitability drag from JLR. While absolute downside on the stock may be limited, a case for reflation may not be there until JLR starts closing the margin gap with luxury OEs. JLR’s model cycle remains exciting, in our view, and higher-than-expected volume could be a positive surprise, it added.
At 10:36 am; Tata Motors was trading 3% lower at Rs 259 on the BSE, as compared to 0.14% decline in the S&P BSE Sensex. A combined 9.48 million equity shares changed hands on the counter on the BSE and NSE so far.