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Tata Motors Q2 Review: Analysts See India Business Turnaround But Chip Supply Woes Linger

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

Tata Motors Ltd. Hexa sports utility vehicle (SUV) displayed at the Auto Expo 2020 in Noida, Uttar Pradesh on Feb. 5, 2020. (Photographer: Prashanth Vishwanathan/Bloomberg)
Tata Motors Ltd. Hexa sports utility vehicle (SUV) displayed at the Auto Expo 2020 in Noida, Uttar Pradesh on Feb. 5, 2020. (Photographer: Prashanth Vishwanathan/Bloomberg)

Analysts see Tata Motors Ltd.’s India business to turn around as demand improves for passenger and commercial vehicles and on new launches, though chip shortage risks persist.

That, too, when the automaker reported a wider-than-expected loss in the quarter ended September. It’s also the third straight quarter of losses for the company.

Tata Motors, however, overall sold 50% more vehicles sequentially in the domestic market on a low base as the second Covid-19 wave disrupted production in the preceding quarter. Its domestic car sales rose 30.3% over the three months ended June.

Shares of Tata Motors rose 5% in early trade on Tuesday, the most in five session, to Rs 510 apiece.

Of the 32 analysts tracking the automaker, 24 have a ‘buy’ rating, five suggest a ‘hold’ and three recommend a ‘sell,’ according to the Bloomberg data. The average of the 12-month consensus price targets implies a downside of 2.6%.

Opinion
Tata Motors Q2 Results: Posts Loss For Third Quarter In A Row

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

Antique Stock broking

  • Maintains ‘buy’ with a price target of Rs 550 apiece, implying a potential upside of 13.23%.

  • Improving demand and margin outlook across businesses.

  • Operating performance in Q2 FY22 adversely impacted by chip shortage and commodity inflation.

  • India business profitability improved despite steep commodity inflation, due to higher sales volume of commercial and passenger vehicles.

  • India commercial vehicle business is poised for a cyclical upturn over the next two years.

  • Passenger vehicle business turnaround is being led by success of its new models.

  • Expects better pricing, along with the management’s focus on cost reduction, to drive JLR’s EBIT margin improvement from 2.6% in FY21 to 5.3% in FY23E.

  • Slower-than-expected recovery in commercial vehicle demand in India and further supply chain disruptions, including semiconductor shortages remains key risks.

Prabhudas Lilladher

  • Maintains ‘buy’ with a price target of Rs 648 apiece, implying a potential upside of 33.41%.

  • Tata Motors firing on all cylinders.

  • Consolidated performance largely surprised on all fronts with revenue growing 15% YoY and margin merely contracting 95 basis points QoQ.

  • JLR retails are likely to pick up as and when chip supply recovers.

  • Passenger vehicle business to likely gain further market share based on its SUV-focused approach, new product pipeline and EV-focused approach.

  • Commercial vehicle industry is benefitting from cyclical upturn and volumes will be driven by infra, agricultural and e-commerce segments.

Emkay Global

  • Maintains ‘buy’ with a price target of Rs 550 apiece, implying a potential upside of 13.23%.

  • Revenue outlook robust amid healthy demand and improving supplies.

  • Consolidated revenue grew 15% YoY to Rs 61,380 crore, in line with estimate.

  • Expects robust revenue/Ebitda CAGRs of 19%/37% over FY22-24E.

  • Expects 18%/19% CAGRs in India commercial/passenger vehicle volume over FY22-24E, driven by improving macros, new products and marketing efforts.

  • Delay in ramp-up of production due to supply issues for semiconductors remains a risk.

Nirmal Bang Institutional Equities

  • Maintains ‘sell’ with a price target of Rs 369 apiece, implying a potential downside of 24%.

  • Tata Motors missed margin due to raw material cost pressure in India and relatively adverse regional mix in JLR.

  • Commodity cost and chip shortage risks persist.

  • Passenger vehicle franchise to support free cash flow.

  • In passenger vehicles, the company has received strong response to its new model launch (Tata Punch) with waiting period of up to five months.

  • Commercial vehicles continue to witness strong demand momentum, but its sustainability remains a key monitorable in the coming quarters.

  • India business well placed for a strong turnaround.

  • Constructive on the India business and increase total volume estimates by 13-16% primarily to factor in strong demand, led by new model launches.

  • Chip shortages, margin and response to new launch to lead to uncertain H2 FY22 for JLR.