Tata Motors rallies 10% as JLR drives Q4 nos; further upside likely


Shares of Tata Motors BSE 6.81 % surged over xx per cent in Tuesday’s trade after a host of brokerages reiterated their buy ratings on the stock, following better-than-expected fourth quarter earnings from the owner of the iconic JLR brand.

Analysts said the Tata Motors management sounded confident of maintaining the volume momentum across geographies,
driven by new products such as Discovery Sports , XE and F-Pace. “Even in India , the management indicated gaining market share in the 37-tonne (M&HCVs) as well as passenger cars segments, led by strong response to Tiago,” said brokerage Edelweiss BSE -3.33 % Securities.

Following the results, the stock rallied 10.3 per cent to hit a high of Rs 463.90 pnm BSE.

“We expect 20 per cent EPS CAGR over FY16-18, driven by strong margin in JLR and volume traction in India with stable RoE of 18 per cent. We value JLR at 5.5 times EV/EBIT and maintain a buy with a SOTP-based target price of Rs 512 (vs Rs 391 earlier). At CMP, the stock trades at PER of 8 times FY17/FY18E EPS,” Edelweiss note said.

Tata Motors post market hours of Tuesday reported a three-fold jump in net profit to Rs 5,177 crore for the March quarter from Rs 1,717 crore in the year-ago quarter. The company said it British subsidiary Jaguar Land Rover (JLR) clocked a 56.3 per cent jump in its net profit to 472 million pounds from 302 million pounds a year ago, driven by record sales across its key markets of Europe, China and the US .

JLR’s average realisation jump of climbed 4.7 per cent sequentially, which surprised many analysts. Foreign brokerage CLSA has maintained a buy rating on the stock with a target of Rs 545. In a note to clients the firm said that the performance of JLR, China JV and India surprised it positively.

“We believe more positive surprises on volumes and margins are possible. India business swung into profits earlier than we expected. We expect Tata Motors to deliver a strong 21 per cent EPS CAGR over FY16-18,” the brokerage said.

Another foreign broking firm Credit Suisse too has maintained outperform on the stock with a target of Rs 470. JLR’s Ebitda at 16.2 per cent in Q4FY16 were above the brokerage’s expectations of 15 per cent.
“China JV continued to surprise positively with its profitability. Consolidated profit was around 50 per cent higher than estimated,” the brokerage said. JLR’s retail sales in Europe climbed 55 per cent in the March quarter. Sales in China were up 19 per cent on account of local production of the Land Rover Discovery Sport SUV and the ramp up of the Jaguar XE sedan.

“I feel that the stock remains an attractive play to add into the portfolio,” said Deven Choksey, MD, KRChoksey Investment Managers.

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