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Tata Motors skids as margins dip at JLR

Analysts downgrade stock management ups JLR capex outlook

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The scrip plunged nearly 12 per cent on Wednesday, as a decline in margins at its (JLR) unit and volume growth concerns led to a slew of analyst downgrades.

UBS cut its price target for the stock to Rs 270 from Rs 320, while maintaining its ‘sell’ rating. The foreign brokerage believes volume growth for JLR could incrementally disappoint and domestic sales growth remains at risk due to the country’s weak economic outlook and increasing competition.

From 17 per cent in the December quarter, JLR’s Ebitda margin fell to 14.6 per cent in the March quarter.

“JLR’s performance disappointed as margins slipped 240 basis points quarter-on-quarter on an adverse mix and currency impact,” Amit Kasat and Aniket Mhatre, analysts at Standard Chartered Securities, said in a note to clients. “Given the slowdown in Europe, the deceleration in China and the subdued demand in India, Tata Motors is likely to report muted earnings growth in FY13 over a high base,” they added.

Standard Chartered downgraded the stock to ‘in-line’ from ‘outperform’ and cut the price target to Rs 280 from Rs 316.

Tata Motors’ shares declined 11.80 per cent, or Rs 32.55, to Rs 243.35 on the Bombay Stock Exchange on Wednesday. The stock was the biggest loser on the Sensex, dragging it down by 73 points. The 30-stock index fell 126.43 points to close at 16,312.15.

Prior to on Wednesday’s fall, the scrip had gained 54.64 per cent in the year, compared to 6.36 per cent increase in the Sensex during the same period.

Yesterday, Tata Motors reported a 136 per cent jump in consolidated net profit for the at Rs 6,234 crore, buoyed by emerging market sales at JLR and a one-off deferred tax credit of Rs 1,820 crore. JLR, which Tata Motors bought for $2.3 billion (Rs 12,880 crore) in 2008, accounted for 91 per cent of the net profit, as sales grew 48 per cent because of robust demand in China.

JLR capex guidance upped
In an analyst meet after the earnings announcement, the management sounded cautiously optimistic on volume growth at JLR in Europe and the UK, according to Surjit Arora, auto analyst at Mumbai-based brokerage Prabhudas Lilladher.

“The company increased its guidance for capex and R&D spend at JLR to £2 billion, against the earlier guidance of £1.5 billion,” he said in a note to clients.

JLR was likely to come up with two new launches in FY13 — station wagon in Q3 and the platform in Q4, he said.

“We believe there would be near-term pressure on the stock price and monthly volumes would be the key to its performance,” said Arora, who maintained his ‘accumulate’ call on the scrip, with a price target of Rs 296.

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