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Tata Motors surges after Brexit hopes brighten

PM Boris Johnson’s promise to deliver on Brexit is seen as a sentimental positive for Indian cos with exposure to the UK.

ET Bureau|
Dec 14, 2019, 09.11 AM IST
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Mumbai: Shares of auto-maker Tata Motors hit an over six-month high on Friday as the Boris Johnson-led Conservative Party won the elections in the UK – an important market for the company. The stock, which surged as much as 6% to a high of Rs 183.90, pared some gains, ending nearly 2% up at Rs 176.65.

British Prime Minister Johnson has promised to deliver on Brexit, which is seen as a sentimental positive for Indian companies with exposure to the UK as it removes a factor of uncertainty. UK accounts for 20% of sales of Tata Motors’ subsidiary Jaguar Land Rover (JLR), analysts said.

JLR reported a 3.4% decline in total retail sales at 46,542 units in November as compared to the year-ago period. The year-on-year sales in China for the Tata Motorsowned brand increased by 29% while North America sales also grew by 4.9%. Sales were down in the UK by 10.8% reflecting lower industry and lower incentives on selected models, Europe also witnessed a 16.8% decline, largely reflecting higher sales a year ago ahead of tax changes in certain jurisdictions.

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“The problem in the UK is that there was a lot of uncertainty surrounding Brexit for the last three years. The victory of Conservative Party has brought some clarity,” said Jigar Shah, CEO, Kim Eng Securities. The brokerage has a ‘sell’ rating on Tata Motors with a target price of Rs 137 as it believes that Tata Motors’ performance both in India and at JLR may continue to disappoint.

Analysts believe with the Conservatives returning to power, they are likely to get a conclusion on Brexit by the January 31 deadline.

A no-deal Brexit would be a worst case scenario and it would have a material negative impact, but the probability of that is low, they added.

“The automotive sector demand will remain sluggish for both TML(S) (Tata Motors) and JLR for FY20-21. Besides, the intense competition in Indian market for TML (S) and higher warranty and variable marketing expenditure expenses for JLR will pose challenges,” Geojit Financial Services said in a note.

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