Want to double your investment? Here is what experts are saying about Tata Motors shares

It was just yesterday that automaker Tata Motors shares jumped by nearly 8% on stock exchanges. However, investors joy proved short lived as the company’s shares have plummeted nearly 6% after Q4FY19 result announcement. At around 1151 hours, Tata Motors share was trading at Rs 179.35 per piece down by Rs 10.65 or 5.61% on Sensex. Key highlights from Tata’s Q4FY19 was turning losses into profit if compared with previous quarter. Tata has been facing heat due to its luxury car brand Jaguar Land Rover struggling in the Chinese market. Also, Brexit shocks and lackluster sales demand has dampened growth in JLR. However, the current Q4FY19 result does show an improving picture in Tata Motors going forward. So much so that analysts have even given a buy rating to Tata Motors shares. In fact, the company is seen giving over 50% returns going forward! 

Talking about Q4FY19, Jay Kale and Vijay Gyanchandani analysts at Elara Capital said, “Tata Motors (TTMT IN) consolidated EBITDA declined 25% YoY at INR 84.5bn. JLR adj EBITDA fell 32% YoY to GBP 696mn. Adj JLR margin was down 360bp YoY to 9.5% as wholesale volume dipped 12% YoY. JLR EBITDA dragged, owing to lower China sales with higher incentives and manufacturing & warranty cost, partially offset by charge savings of GBP 110mn. Standalone financials disappointed as the company reported CV EBIT margin of +7%, down 180bp YoY and 150bp QoQ owing to tough market conditions, and PV EBIT margin at -11.9%, up 650bp YoY though down 240bp, owing to depreciation charge of new launch, Harrier.”

However, the duo at Elara also added, “We remain concerned over near-term volume pressures, especially in China, where we expect no growth in FY20. While uncertainty continues in the UK and US markets, we are impressed by JLR’s outperformance there. Company-specific initiatives have started to bear fruit with project charge (cost-cutting initiatives) being ahead of target (first GBP 1.3bn of GBP 2.5bn target delivered). We reduce JLR (UK production) EBITDA by 6-8% to factor in lower volume. We reiterate Accumulate with a SOTP-based TP of INR 204 from INR 195.”

Meanwhile, experts at JM Financial said, “ While standalone business staged a decent comeback during the year, weak demand environment in 2HFY19, both in PV and CV segment took a toll on margin performance. PV retails for FY19 were up 4%YoY vs. wholesales of c.14%. CVs were slightly better with retails up 23% against 16% wholesales. Gradual recovery in domestic business is expected from 2HFY20, driven by festive sales and BS6 pre-buy. Overall, domestic EBITDA margin stood at 7.3% (-150bps QoQ).”

On JLR, JM Financials said, “While key geographies continue to face one challenge or the other (diesel uncertainty, regulatory norms, Brexit, etc.), China sales remain particularly weak. JLR volumes declined 51% YoY during 4QFY19. Continued weakness in consumer demand, trade tensions and high dealer inventory impacted China business performance. Economic outlook in China remains bleak. The weakness has been more pronounced in premium SUV segment (SUV4 and SUV5 segment with presence of key JLR models). Premium segment discounts in China continue to remain elevated, at 15.7% (vs. 15.5% in 3QFY19). CJLR EBITDA margin stood at 5.4%. Inventory continues to remain high with 1.8months of stocks. The company is gradually correcting the inventory situation. The company remains focused on introducing new products to drive sales. During FY20, key model launches include new Evoque and Defender.”

Following the above, experts at JM added, “Due to weak demand and commodity pressure in the domestic market, TTMT standalone margin declined 150 bps QoQ, partially offset by focussed cost saving initiatives. We expect current headwinds in China and EU to subside by the end of CY19. Recovery in standalone business stays contingent upon easing liquidity scenario, near-normal monsoon and BS6 pre-buy. We estimate revenue CAGR and margin expansion of 7%/140bps over FY19-21. Maintain BUY with Mar’20 TP of INR230.”

Interestingly, Hitesh Goel, Nishit Jalan and Rishi Vora analysts at Kotak Institutional Equities said, "Tata Motors reported consolidated adjusted net profit of Rs 16.2 bn in 4QFY19, which was led by profit in the JLR business despite tough market conditions, helped by cost-reduction initiatives. The standalone business performance was worse than expectations as the company’s expenses were higher than estimated. We believe the management is on course to improve operating margins in both standalone and JLR businesses led by cost reduction initiatives. We maintain BUY rating but cut fair value to Rs 270 (from Rs 280)."

It can be said that, near term challenges still exist in Tata Motors due to JLR. However, new launches, monsoon and festive seasons are going to be key factors for the company. In longer term Tata still is optimistic.

If we take into consideration the current market price and highest target set, then Tata Motors is seen to rise by over 50% in near term. 

Q4FY19 Key highlights:

Tata Motors has turned losses into profit during March 2019 (Q4FY19) quarter, by bagging a consolidated net profit of Rs 1,117.48 crores in Q4FY19, against the massive loss of Rs 26,992.54 crore. However, Q4FY19 profit was nearly halved by 47% from Rs 2,125.24 crore posted a year ago same period.

Consolidated revenue meanwhile jumped to Rs 86,422.02 crore in Q4FY19 compared to Rs 76,915.94 crore in Q3FY19, however, down by 3.9% from Rs 89,928.97 crore in Q4FY18. 

In FY19, Tata Motors wholesale s (including exports) increased 15.0% to 732,428 units. In the domestic market, M&HCV trucks grew +12%, ILCV trucks grew +23%, SCV & Pick Ups grew +24% and CV Passenger grew by 4%. Domestic PV volumes were up 14% with new products driving growth.

Jaguar Land Rover (JLR) posted a drop of 6.1% in net revenue to £24.2 billion during Q4FY19. Meanwhile, retail sales was down by 5.8% to 578,915 units, whereas wholesales below 10.8% to 565,306 units in FY19. However, free cash flows at JLR significantly improved to  £1.4 billion in 04FY19.