Tata Motors Stock Gains As Brexit Overhang Subsides

Shares of Tata Motors gained after the European Union and the U.K. finalised their post-Brexit trade deal.

The stock of the homegrown automaker gained as much as 4.5% in early trade on Monday at Rs 183.95 apiece—the highest in nearly a month. The scrip is up for the fourth straight session and has recovered all of the 9% loss suffered on Dec. 21 over a new coronavirus strain in the U.K.

The deal announced between the U.K. and the European Union late on Thursday ensures that most goods traded between the two won’t face any new tariffs or quotas.

Uncertainty surrounding Brexit, stricter emission rules in Europe and a fall in exports to China—one of its fastest-growing markets—have been hurting sales of Tata Motors’ luxury car unit Jaguar Land Rover. The pandemic only exacerbated the prolonged sales slump. Tata Motors has tried to combat the lockdown-related slump by cutting jobs and investments at JLR in June. But the domestic automaker on Thursday maintained its growth and profitability guidance for the luxury unit, saying its guidance for “improved growth, profitability and cash flows in the second half of the financial year continues to hold”.

According to CLSA analyst Amyn Pirani, this removes a key potential risk for JLR, which can now continue to export its vehicles between the U.K. and EU without additional costs. “We expect investor focus to shift back to its volume and mix recovery as well as JLR’s cost reduction efforts,” Pirani said in the note.

The research firm continues to forecast a sequential volume recovery for JLR, along with cost and model rationalization, which will drive strong free cash flow generation and deleveraging for Tata Motors.

Of the 33 analysts tracking Tata Motors, 18 have a ‘buy’ rating, six suggest a ‘hold’ and the rest recommend a ‘sell’. The stock is trading 13.4% higher than its 12-month Bloomberg consensus price target of Rs 158.3 apiece.