The logo for Tata Motors Ltd. is displayed on the front grill of a Tata Indica vehicle at a showroom. (Photographer: Abhijit Bhatlekar/Bloomberg News)

CLSA, Jefferies Slash Tata Motors’ Target Price On JLR Woes

Global brokerages have turned bearish on Tata Motors Ltd. due to weak demand outlook for the automaker’s luxury unit Jaguar Land Rover.

While CLSA slashed its target price on the stock by 10.6 percent to Rs 295, Jefferies revised it downwards by nearly 14 percent to Rs 440. The 12-month consensus target price for the Tata Motors stock is Rs 451.77, according to Bloomberg. That indicates an upside potential of 46 percent from Wednesday’s closing price.

JLR’s outlook remains weak on subdued demand in the West, an ageing portfolio, rising competition, margin pressures and high investment requirements, CLSA said in a note to clients.

The Indian business outlook is better but is unlikely to offset the pressure at JLR.
CLSA Note

Near-term demand outlook for JLR remains challenging due to weakness in key markets including the U.K., Europe and the U.S., Jefferies said in a post-earnings note.

Global markets, which contribute nearly 90 percent to Tata Motors’ revenue, will remain challenging , JLR Chief Executive Officer Ralf Speth said yesterday in the post-earnings press conference.

Tata Motors’ consolidated net profit for the March quarter fell 50 percent to Rs 2,125 crore, while operating margin contracted 170 basis points to 12.3 percent.

Here’s what else the two brokerages had to say:

CLSA

  • Maintained ‘Sell’ rating.
  • Cut FY19-20 earnings per share estimates by 7-8 percent.
  • JLR outlook remains weak and margin commentary subdued.
  • Management was cautious on the volume outlook for JLR given weak demand in the West, especially the UK.
  • Tata’s Indian business is relatively better placed given a healthy demand outlook for commercial vehicles.

Jefferies

  • Maintain ‘Buy’ rating.
  • Cut volume growth estimates for JLR to reflect lower base of FY18 and near-term weakness in key markets.
  • Cut margins to reflect new accounting policy and lower economies of scale benefits.

Domestic brokerage Prabhudas Lilladher, however, turned bullish on the stock post the results. The brokerage has upgraded the stock to a ‘Buy’ from ‘Accumulate’ with a target price of Rs 378, implying an upside potential of 22.3 percent from current level.

JLR’s full product range being available in electric vehicle/hybrid variants from 2020 gives us further confidence. Management’s focus on improving the performance of the standalone entity is now clearly visible and we expect the same to continue. 
Prabhudas Lilladher Note

Shares of Tata Motors fell as much as 3.4 percent to Rs 299 in early trading. The stock has fallen 34.10 percent in the last one year compared to a gain of 13.34 percent for the S&P BSE Sensex during the same period.