What Analysts Have To Say About Tata Motors’ Q4 Performance

Analysts expect Tata Motors Ltd.’s efforts to cut costs and capital expenditure to aid cash flows as most of them maintained bullish stance on the automaker despite posting nearly Rs 10,000-crore loss in the fourth quarter.

Tata Motors’ net loss stood at Rs 9,894.2 crore in the three months ended March compared with a profit of Rs 1,117 crore a year ago, as a lockdowns to contain the coronavirus pandemic across its markets ravaged sales. That included a Rs 2,549-crore provision for impairment in its passenger vehicles business, onerous contracts and subsidiaries.

The automaker will also cut 1,100 more jobs at Jaguar Land Rover and defer or cancel investments at domestic business and luxury arm as it looks to pare debt.

Of the 36 analysts tracking the stock, 18 recommend a ‘buy’, 11 suggest a ‘hold’ and the rest has a ‘sell’ rating. The average 12-month target price tracked by Bloomberg implies an upside of 10%.

Shares of Tata Motors dropped as much as 5% on Tuesday compared with a 0.9% gain in the Nifty Auto Index. So far this year, the stock has fallen by nearly half, while the auto gauge declined 21% during the period.

Here’s what the brokerages have to say about Tata Motors' Q4 Results:

CLSA

• Maintains ‘Underperform’ but raises target price to Rs 105 apiece from Rs 83.
• Expects the company to turn free cash flow positive in fiscal ending 2022.
• Raises consolidated Ebidta forecasts for financial years 2021/2022 by 6-10%.
• Cut in capex should reduce negative free cash flow in near term.
• There is a need to deleverage India business via strategic sale in India passenger vehicle segment or via an equity dilution.

Nomura

• Downgrades to reduce but hikes target price to Rs 78 from Rs 74 a share.
• Expects JLR’s volume to contract 9% in fiscal ending March 2021 and grow 11% in fiscal ending 2022.
• JLR may not benefit as much as other original equipment makers as global auto stimulus is more focused on electric vehicles.
• If weak demand conditions continue, JLR’s free cash flow generation could be hampered further.
• High investment requirements (to meet strict emission targets) and weak demand will likely keep JLR’s free cash flow negative in fiscal 2021 and close to breakeven in fiscal 2022.

Edelweiss

• Retains ‘buy’ but cuts target price to Rs 127 apiece from Rs 134.
• Sees tailwinds such as JLR product cycle and significantly lower breakeven levels.
• The balance sheet improvement remains on course.
• Recovery in volumes for JLR will be very critical.
• The company’s ability to sustainably claw back domestic market share (across vehicle classes) remains a key monitorable.

Prabhudas Lilladher

• Maintains ‘hold’ and raises target price to Rs 87 a share from Rs 84.
• Cuts fiscal 2021/22 consolidate EPS by 16%/9% to factor in weak margins.
• JLR expected to witness gradual volume recovery with China stabilising post Covid-19 and improvement in global markets.
• Consistent delivery in cost savings and rationalised capex should help cash flows in challenging times.

Ambit Capital

• Maintains ‘buy’ with target price unchanged at Rs 133 apiece.
• Cuts fiscal 2022 volume estimates for JLR/standalone business by 7%/14%, led by trickling effect of visibility in delay of demand revival across key markets.
• Cuts consolidated Ebidta estimates for fiscal 2022 by 10% due to adverse operating leverage.
• The management is focusing only on product development and avoiding expansionary capex, which will result in minimal impact on free cash flow.

ICICI Securities

• Maintains ‘buy’ but lowers target price to Rs 126 from Rs 175 apiece.
• Continued delivery on cost savings targets, coupled with prudent capital allocation, can drive valuations higher.
• JLR has visible demand green shoots (China) with the improving profitability and reduced capital investments.

Kotak Institutional Equities

• Downgrades to sell and cuts target price to Rs 90 from Rs 130 apiece.
• Business cannot return to profitability if volumes don’t recover sharply driven by very high fixed cost structure.
• The company will float due to longer tenure debt repayments and Tata Group’s support.
• Sees limited visibility of the company reporting profits anytime soon due to a weak outlook on volumes.