Analysts bullish on Tatas despite crisis

The proportion of analysts recommending underperform for Tata group stocks continues to be low, except for Tata Steel

The ouster of Cyrus Mistry as chairman of Tata Sons and the boardroom and media battles that followed have not pushed top brokerage analysts to downgrade stocks of key Tata group companies. Although stock prices have seen significant erosion over the past few weeks, analysts’ recommendations have continued to remain bullish.

Several companies including Tata Steel, Tata Consultancy Services and Tata Motors have called an extra-ordinary general meeting (EGM) to oust Cyrus Mistry from the board. While the Mistry camp has alleged several violations, the Tatas have maintained that everything has gone by the book, corporate governance experts have been critical of various aspects. Yet, the majority of analysts are holding on to their 'buy' and 'outperform' recommendations for these companies, according to a Reuters Survey of Analysts. 

The survey classified analyst recommendations in five broad categories of ‘buy’, ‘outperform’, ‘hold’, 'underperform' and 'sell'. 

According to Reuters data, 33 out of 43 analysts surveyed continue to recommend buy/outperform on Tata Motors; 18 out of 50 analysts for TCS, 11 out of 31 for Tata Steel, 13 out of 28 for Tata Power and six out of eight analysts surveyed continue to recommend buy/outperform on Tata Global beverages stocks.

The proportion of analysts recommending sell / underperform for Tata group stocks continues to be low, except for Tata Steel. Of the 31 analysts surveyed for Tata Steel, 14 gave 'sell' recommendations, against 11 'buy' recommendations as on November 28. 

Analyst recommendations and price targets are a function of earnings per share (EPS) targets and price-earnings (P/E) ratio targets. Price targets would change, if one of these two variables are impacted significantly. 

Senior analysts say while the chances of earnings impact are minimal, what could possibly change was P/E. Even these have not changed. Tarun Sisodia, director, Chanakya Niti Consultancy, said, “The analysts are indicating that they are not worried. Most of these companies are process-driven. One individual leaving may not make a significant impact.”

Sisodia added that he did not think that earnings of these companies would change because of concerns over corporate governance. “There could be minor changes because of potential payouts to Mistry and legal expenses. But, the EPS is not likely to change."

Sisodia also added that ‘sell’ recommendations are few and far between, even outside the Tata universe, since analysts have a tendency of not giving negative recommendations.