Tata Motors gains 6% after JLR sales vroom, CLSA upgrades stock to ‘buy’

CLSA expects JLR margin profile to improve led by volume growth and for commercial vehicles (CV) and passenger vehicles (PV) business margin to improve on lower commodity costs and price hikes.

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The Tata Motors share price jumped over 6 percent and was the top index gainer in the early trading hours of January 10 after CLSA upgraded the stock with a ‘buy’ tag.

The global research firm has also raised the target price to Rs 512 a share, an upside of over 23 percent from the current market price, according to a CNBC-TV18 report.

The brokerage firm expects the JLR margin profile to improve led by volume growth, and for commercial vehicles (CV) and passenger vehicles (PV), business margin to improve on lower commodity costs and price hikes. “Improvement in volume and margin profile to aid free cash generation in FY24,” it said.

Jaguar Land Rover, a wholly owned subsidiary of Tata Motors Limited, on January 9 reported increased wholesale volumes for the third quarter of FY23, reflecting gradual improvement in chip supplies. The New Range Rover, New Range Rover Sport, and Defender represent 74 percent of the order book.

Read: JLR Q3 retail sales up 5.9% YoY; free cashflow to touch $485 million

Wholesale volumes were 79,591 units in the period (excluding the Chery Jaguar Land Rover China joint venture), up 5.7 percent, compared to the previous quarter ending September 30, 2022, and 15.0 percent, compared to the same quarter a year ago.

Read: Tatas a step closer to giving India its first homegrown iPhone maker

As against the prior quarter, wholesale volumes were higher in North America (+17 percent), the United Kingdom (+13 percent), and overseas (+10 percent), and lower in China (-13 percent) and Europe (-3 percent); volumes in China were impacted by Covid-19.

Retail sales for the third quarter were 84,827 units, up 5.9 percent compared to the same quarter a year ago and 3.7 percent lower than the quarter ending September 30, 2022, reflecting timing between retail and wholesale.

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Morgan Stanley on the other hand has an ‘overweight’ rating on the stock with a target of Rs 502 per share. It is of the view that JLR is likely to generate £400 million-plus free cash flow in Q3. “The high interest rate environment is a risk to global PV demand. Given low starting point of JLR volumes and depressed EBIT margin we maintain positive view,” it said.

JP Morgan, however, has a ‘neutral’ rating on Tata Motors with a target at Rs 400 per share. “Model Mix improved with share of Land Rover at 87 percent in Q3. Share of higher margin models was at 65 percent against 45 percent in H1. This is likely driving management expectation of £400 miliion of positive free cash flow (FCF) in Q3,” it said.

“JLR needs to achieve a similar FCF in Q4 to meet full year guidance,” JP Morgan added.

At 10:12am, Tata Motors was quoting at Rs 413.30, up Rs 23.90, or 6.14 percent on BSE. It has touched an intraday high of Rs 415.80 and an intraday low of Rs 399.30.

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