TATA Motors Shares Fall 6% | UBS Warns of JLR Issues
Contents
Shares of Tata Motors fell for the second consecutive day, with a 0.5% decline on September 12. The stock had already dropped over 6% on the previous day, making it the top loser on the Nifty 50 index. This decline follows a ‘Sell’ recommendation from global brokerage firm UBS, which issued a price target of ₹825 per share, implying a potential 20% downside from Tuesday’s closing price.
Concerns Over Jaguar Land Rover (JLR) Discounts
UBS raised concerns about the recent spike in discounts offered by Tata Motors’ British arm, Jaguar Land Rover (JLR). The report suggests that the strong demand for JLR’s premium models, such as the Defender, Range Rover, and Range Rover Sport, which had previously boosted average selling prices (ASPs), is now slowing down. The order book for these models has fallen below pre-pandemic levels, and UBS expects that discounts on Range Rovers could increase soon.
Additionally, UBS expressed concerns about potential margin slippage within JLR, as well as risks within Tata’s Indian passenger vehicle segment.
JLR Financial Performance and Outlook
In the June 2023 quarter, JLR reported a 5.4% rise in revenue, amounting to £7.3 billion. The company’s operating margin (EBIT) improved by 30 basis points to 8.9%, driven by favorable volume, product mix, and material cost improvements. Despite this, UBS’s concerns about future discounting and the order book’s slowdown have raised doubts about JLR’s ability to sustain its recent performance.
Production Challenges Ahead
Tata Motors had already stated that it expects constrained production for JLR in the second and third quarters of 2024, due to the combination of an annual plant shutdown and floods at a key aluminium supplier. This could further impact the company’s margins and revenue in the coming quarters.
Stock Performance and Market Sentiment
The UBS ‘Sell’ rating has added pressure on Tata Motors’ stock, which is currently trading at ₹969.2, down 0.73%. The stock has fallen 18% from its record high of ₹1,179 reached on July 30, 2024. However, despite this recent decline, Tata Motors’ stock has risen 23% so far in 2024 and had an impressive performance in 2023, being the only stock to double in value on the Nifty 50 index.
Analyst Ratings
Out of the 35 analysts covering Tata Motors, 23 have a ‘Buy’ rating, seven have a ‘Hold’ recommendation, and five have a ‘Sell’ rating, highlighting the mixed sentiment around the stock’s future performance.
Advantages of Tata Motors’ Performance
- Resilient Growth in 2023 and Early 2024: Tata Motors showed strong performance in 2023 and the first half of 2024, with a 23% rise so far this year. The company doubled its stock value on the Nifty 50 index in 2023, which highlights its previous momentum.
- Steady Financial Results at JLR: JLR’s June quarter showed an improvement in revenue and operating margin. With EBIT rising to 8.9%, this reflects a well-managed operation, despite external challenges.
- Strong ASPs for Premium Models: JLR’s premium models, such as the Range Rover and Defender, have helped boost ASPs, which has been a key driver for its recent revenue growth.
Disadvantages and Risks
- Slowdown in Demand for JLR Premium Models: UBS has flagged that demand for premium models is slowing down, and the order book has fallen below pre-pandemic levels. This could lead to increased discounts and margin pressure.
- Production Constraints: The annual plant shutdown and supply chain issues due to flooding at an aluminium supplier are expected to constrain JLR’s production in the next two quarters. This could impact the company’s ability to meet market demand and affect its financials.
- Potential Stock Downside: UBS’s ‘Sell’ recommendation and the price target of ₹825 suggest a potential 20% downside from current levels. This reflects concerns about JLR’s ability to sustain growth in the face of slowing demand and production issues.
- Margin Risks in India: UBS has also expressed concerns about potential margin slippage within Tata Motors’ Indian passenger vehicle segment, which could add further pressure on the company’s financials.
Conclusion
Tata Motors is facing a challenging period, with UBS raising concerns about JLR’s declining demand and potential margin risks. The company’s stock has seen a significant decline over the past two days, dropping by over 6% on Wednesday and 0.5% on Thursday. While Tata Motors has shown resilience in its overall performance in 2023 and early 2024, the issues raised by UBS, including discounts on JLR models and production challenges, could weigh on the stock’s performance in the coming months.
Investors should be cautious about short-term volatility and monitor the company’s production capabilities and demand recovery at JLR.
FAQs
- Why has Tata Motors’ stock fallen recently?
The stock has fallen due to concerns raised by UBS about slowing demand for Jaguar Land Rover (JLR) models and increased discounts, as well as potential margin slippage in Tata’s Indian passenger vehicle segment.
- What is UBS’s price target for Tata Motors?
UBS has issued a ‘Sell’ recommendation on Tata Motors with a price target of ₹825 per share, suggesting a potential 20% downside from current levels.
- How has JLR performed financially?
In the June 2023 quarter, JLR reported a 5.4% rise in revenue to £7.3 billion and an improvement in operating margin (EBIT) to 8.9%, driven by favorable volume, mix, and material cost improvements.
- What are the key risks for Tata Motors going forward?
The key risks include slowing demand for JLR’s premium models, potential production constraints in the coming quarters, and margin slippage within both JLR and Tata’s Indian passenger vehicle segment.
- How has Tata Motors’ stock performed in 2024?
Despite the recent drop, Tata Motors’ stock has risen by 23% so far in 2024, building on a strong performance in 2023, when it was the only stock on the Nifty 50 index to double in value.
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