150% in 1 Year! This Rakesh Jhunjhunwala-owned stock gets rating downgrade; what should investors do?

Tata Motors Ltd, which has rallied more than 150 per cent in the last 1 year compared to 24 per cent upside seen in the Nifty50 in the same period, gets a rating downgrade from a global investment bank post-December auto sales number.

Ace investor Rakesh Jhunjhunwala holds 1.1 per cent stake in Tata Motors or 3.6 cr shares at the end of the September quarter.

CLSA downgraded Tata Motors to Sell from Buy earlier, and also slashed its target price to Rs 408 from Rs 450 earlier.

Tata Motors on Saturday reported a 50 percent jump in total passenger vehicle sales to 35,299 units in December 2021.

The Pune-based company had sold a total of 23,545 units in the same month a year ago, Tata Motors said in a regulatory filing.

Despite healthy monthly sales, CLSA gives a lower valuation for its domestic passenger vehicle (PV) business, that is below the recent valuation ascribed to it by a PE fund & on a lower valuation for JLR due to its slower EV ramp-up versus competitors.

Domestic PV business remains overvalued while JLR is behind in electrification Commercial vehicle business, said the note.

The automaker with a market capitalization of more than Rs 1.6 lakh cr hit a fresh 52-week high of Rs 536 on 17 November.

However, most of the other global investment banks and experts remain positive on Tata Motors for a long-term outlook.

"There is a robust consumer demand with a record order book for JLR and India PV (ICV & EV) and CV. Q3FY22 PV and CV volume grew by 44% and 12% YoY, respectively,” Vinod Nair, Head of Research at Geojit Financial Services, said.

“High valuation, global semiconductor shortages and increase in commodity prices will affect the performance of the company, in the short-term. However, we have a positive view on a long-term basis,” he said.

Nair further added that the future business strategy is on the right track and has the first-mover advantage compared to peers. It is also expected that the company will be able to mitigate the current supply issue during the year.

In the third quarter ended December 2021, the company said its total passenger vehicle sales stood at 99,002 units as compared with 68,806 units sold the same period in the previous year, up 44 percent.

Global brokerage firms such as Nomura, and Macquarie see up to 16 per cent return on the global automaker in the next 12 months. Consensus rating of 19 out of 27 analysts give a buy rating on Tata Motors, Trendlyne data showed.

Nomura maintained buy rating on Tata Motors with a target price of Rs 582 that translates into an upside of 16 per cent from Rs 498 recorded on 3 January.

Macquarie also maintained outperform rating on Tata Motors with a target price of Rs 567 that translates into an upside of 14 per cent from Rs 498 recorded on 3 January.

Technical Check:

Shares of Tata Motors are trading above crucial short- and long-term moving averages such as 30,50,100 and 200-DMA. MACD is above its center and signal Line, this is a bullish indicator.

“Tata Motors confirmed a breakout from the falling trendline with a gap up opening. This has confirmed a breakaway gap and that indicates fresh upside in the stock,” Mehul Kothari AVP – Technical Research, Anand Rathi Shares & Stock Brokers, said.

“Going ahead; the stock is poised to retest 530 mark and even higher towards 550. Support on the downside is 480,” he added.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)