Tata Motors shares up nearly 10%: Should you buy?

Tata Motors share saw a 10% jump on Tuesday morning. On BSE, the company touched an intraday high of Rs 198 per piece, which resulted in overall jump of 9.91% on the index. However, at around 1311 hours, the share price was trading at Rs 193.50 per piece up by Rs 13.40 or 7.44%. Such uptrend in Tata Motors was despite the company witnessing a drop in February 2019 sales. This comes amid reports claiming that Tata Motors is looking for divesting its stake in luxury car brand Jaguar Land Rover (JLR). Tata Motors has been facing difficulty in their earnings due to weak sales, Brexit impact and sluggish China market demand of JLR. But looks like JLR is now turning some stones into gold, as the car has registered good sales record, despite the parent seeing a decline in its own sales. 

In February 2019, Tata Motors sales in domestic market recorded a drop of 3% at 57,221 units as against 58,993 units sold over last year as weak consumer sentiments continued.  Cumulative sales for the domestic market (April 2018 -February 2019) grew by 18% with 610,108 units as compared to 517,198 units over the same period last year. 

On the other hand, Jaguar sales for the same month shot up to a whopping 59% rise with 3,465 units compared to  2,185 units in February 2018. Meantime, Tata Motors revealed that Land Rover saw its best ever February sales with 19% growth, having sold 8,151 units as against 6,828 in February 2018. It was the US market which turned out to be a game changer for JLR, as together they posted a 29% increase with 11,616 units in this month vs 9,013 units in February 2018.

Joe Eberhardt, President and CEO, Jaguar Land Rover North America, LLC said, “We are pleased to have achieved our best February retail month ever for Jaguar Land Rover in the U.S.” Adding he said, “This result was driven by the continued sales momentum of the Discovery Sport, Range Rover Sport, Jaguar XE and F-PACE."

Last week, there were reports claiming Tata said to explore options including JLR stake sale. However, the company shrugged off the news. 

In a filing to exchange, Tata said, “There is no truth to the rumours that Tata Motors is looking to divest its stake in JLR and we would not like to comment further on any market speculation."

In Q3FY19, Tata chose to record massive net loss in their financial books, in order to give an exceptional item of asset impairment in JLR of Rs 27,838 crore. 

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Should you buy Tata Motors? 

Analysts at Antique Broking have given a buy call on Tata Motors with a price target of Rs 240, by adjusting  FY19 estimates to account for exceptional loss incurred during 3Q and cut our FY20/21 estimates by 20%/ 16%, due to JLR volume headwinds and near-term cash burn.

Following the sales of JLR in US, Macquarie has given a outperform rating a target price of Rs 260. Also, according to Reuters radar for analysts calls on Tata Motors show that, 10 have given a buy rating, while 6 with outperform. Meanwhile, 18 have given a hold target and only 1 as sell. This shows that, Tata Motors is a stock to add in kitty. 

Meanwhile, Mustafa Nadeem, CEO, Epic Research said, "Now on the flip side Tata Motors has seen some good recovery and to be technical about it we believe it is due to large short covering rally we have seen initially later poised by good value buying. 

Though Nadeem believes this is an initial run up as the trend has been in effect for some time and there may be some profit booking in short term. The stock has very strong resistance in the zone of 208 - 220. 

With recent price action, Nadeem said, "we believe anyone willing to invest with short term view can look to accumulate at lower levels of 175 - 180 with upside to 218."

The company’s  management expects full year FY19 to see marginally negative EBIT margins (against earlier expectations of FY19 EBIT breakeven).

Saksham Kaushal and Poorvi Banka analysts at Prabhudas Lilladher said, “Concerns over sales in China are expected to persist over the near term with further dealer inventory correction expected in Q4 to reach 1.5 months of dealer inventory levels. EBIT guidance over FY20-22 also has been reduced to 3-6% (earlier 4-7%).”

The duo added, “Standalone performance for the company remains on track. We currently factor in ~5.5% volume growth for JLR over FY19-20 and maintain “BUY” with the target price of Rs207, where we value JLR at 1.5x Sept’21E EV/EBITDA and Standalone entity at 9x Sep’21E EPS.” Following which, analysts here has given a buy rating with a target price of Rs 207.