Tata Motors Shares Slump As Brokerages Highlight Near-Term Risks
Range Rover Evoque Sport sport utility vehicles (SUV) and Land Rover Discovery Sport sport utility vehicles (SUV) sit on a transporter outside Jaguar Land Rover Plc’s assembly plant, a unit of Tata Motors Ltd., in Halewood, U.K. (Photographer: Matthew Lloyd/Bloomberg)

Tata Motors Shares Slump As Brokerages Highlight Near-Term Risks

Analysts expect the severe second wave of Covid-19 infections to impact Tata Motors Ltd.’s standalone performance and semiconductor shortages to drag its luxury brand’s volumes in the near term. Still, most brokerages maintained their bullish stance on the automaker.

Tata Motors suffered a loss of Rs 7,585 crore in the January-March period against the Rs 2,941-crore profit in the quarter ended December. That was because of exceptional charges even as sales of its utility vehicles and cars rose during the period.

Sales of Jaguar Land Rover, which contributes 80% to Tata Motors’ revenue, however, fell 3.88% sequentially in the quarter ended March.

“JLR and domestic Q4FY21 margin performances were slightly better than expected, while FY22 guidance was in line,” HSBC said in a note. But UBS and Kotak Institutional Equities said JLR’s operating performance was below expectations.

Of the 34 analysts tracking the automaker, 20 have a ‘buy’ rating, six suggest a ‘hold’ and eight recommend a ‘sell,’ according to the Bloomberg data. The average of the 12-month consensus price targets implies an upside of 11%.

Tata Motors’ stock dropped 6.1%, the most in a month, but pared some of the losses to trade 4.8% lower around 11:30 a.m. on Wednesday.

Also read: Tata Motors Q4 Results: Rs 7,585-Crore Surprise Loss; Revenue Beats Estimates

Here’s what brokerages have to say about Tata Motors’ fourth-quarter results...

UBS

  • Maintains ‘neutral’ with a price target of Rs 360 apiece.
  • Semiconductor shortage likely to impact JLR volumes in the first half of 2021, but management hopes to make it up in the second half.
  • In the domestic business, passenger vehicle volume growth will remain largely un-impacted because of the backlog.
  • Truck retails to be significantly impacted in Q1FY22 due to lockdowns
  • JLR Ebitda strong but still 9% below expectations.

HSBC

  • Maintains ‘buy’ with a price target of Rs 380 apiece.
  • Domestic performance largely in line with expectations with Ebitda margin at 6.9%, up 100 basis points quarter-on-quarter.
  • Strong operating leverage partially offset by higher commodity prices
  • Materially adverse impacts from Covid-19 and semiconductor shortage to be the key near-term risks.

Motilal Oswal

  • Maintains ‘buy’ with a target price of Rs 332 apiece.
  • Performance in 4QFY21 was a mixed bag as the overall operating performance was in line.
  • JLR’s performance restricted by an adverse mix, despite a sharp beat in volumes.
  • Ebitda margin for JLR fell 50 basis points quarter-on-quarter.
  • Q1FY22 would be challenging for both businesses.

Kotak

  • Maintains ‘sell’ with a target price of Rs 332 apiece.
  • Strong operational performance in the standalone business.
  • JLR operating performance below expectations.
  • JLR launches in the BEV (battery electric vehicle) space are pretty late than competition and coupled with lower investments.
  • Expects the near term to remain challenging for both JLR (due to chip shortage) and standalone operations (due to the second-wave of Covid-19).
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