Brokerages upgrade target price as Tata Motors' net triples in Q1
Tata Motors robust performance and plans for capacity addition and new launches have led analysts to raise their earnings outlook for 2014-15 and 2015-16.
The shares closed 5.92per cent higher on the BSE at Rs 473, reflecting a nearly 60per cent gain in the past year. Tata Motors on Monday said its June quarter net profit had tripled from a year ago to Rs5,398 crore, mainly on strong sales from Jaguar and Land Rover (JLR), prompting some leading brokerages to upgrade their target price for the automaker by about 15per cent. Analysts had estimated a net profit of Rs3,650 crore.
The company’s robust performance and plans for capacity addition and new launches have led analysts to raise their earnings outlook for 2014-15 and 2015-16.
"We have raised our price target on Tata Motors by 14per cent to Rs560 and have increased earnings per share (EPS) forecasts by 13-14per cent over FY15-16," said S Arun, research analyst at BofA Merrill Lynch.
Credit Suisse has increased its target price for the stock from Rs480 to Rs510, while Citigroup’s target price is now up at Rs562 from Rs486 earlier. Tata Motors’ management, in a conference call to analysts, said the company is witnessing strong demand momentum across geographies, which is expected to sustain in the near to medium term.
It said the company is seeing strong growth in emerging markets, especially China, where it has been continuously expanding capacity at its JV with Chery Automobiles.
"We expect improvement in JLR performance to offset concerns over its Indian operations. We are positive on Tata Motors because we believe JLR's margin is set to expand on account of improved product-mix, and strong volumes are supported by a healthy pipeline of launches," said Sahil Kedia, analyst at Barclays.
The three recent launches from JLR — RR, RR Sports and F-type — were well received in all major markets. Over the next one year, the company plans to introduce new models, including Jaguar XE and Discovery Sport. However, analysts expect volume momentum to get restricted, especially in Range Rover, given the capacity constraints over the next two quarters.
Brokerages such as Nomura and Citigroup now have Tata Motors’ as one of the top picks among Indian automakers. "With a higher China mix, improved operating leverage, ongoing platform consolidation and positive forex movement over the past few days, we estimate that Jaguar Land Rover (JLR) FY15F/FY16F Ebitda margin will remain higher at 18.6per cent/16.5per cent,"
Nomura said in a post-earnings note. "We reiterate our buy rating with an increased target price of Rs600; Tata Motors is now our top pick in the Indian auto sector." Citigroup echoed this sentiment. In a note to its clients, the international brokerage said it had increased the Ebitda estimates for JLR by 9per cent and 11per cent for 2014-15 and 2015-16, respectively, while it raised the target price to Rs562 from Rs486.
"We maintain a buy rating on the stock and Tata Motors remains a top pick in the Indian auto space, followed by Maruti and M&M," the note said. The brokerages have upgraded the earnings outlook and target price for three reasons. First, the consensus estimate for the April-June quarter was way lower than the actual earnings; this automatically resulted in earnings upgrade as analysts fine-tune their estimates for 2014-15.
The second factor is JLR’s Ebitda margins of 20.3 per cent and the management’s commentary, which gave analysts enough fodder to take a relook at their margins assumption. Analysts have now revised their JLR Ebitda margin estimates to 17.5-18.5 per cent for 2014-15 and 2015-16 compared to the earlier estimates of 16.5-17.5 per cent.
The third factor is volumes. Brokerages have revised volume assumptions for JLR by 1-2 per cent up after the company’s June quarter performance and a speedy growth in markets such as China. Analysts and investors are nonetheless likely to keep an eye on the margins trajectory of JLR on account of the Chinese government’s recent intervention in the pricing mechanism. JLR has had to recently cut prices of some models in response to the investigations done by the anti-trust department of China. Its domestic business continues to worry investors.
It reported a 15 per cent drop in standalone revenue after its medium and heavy commercial vehicles volume declined 13 per cent to 27,158 units.