Tata Motors rallies 8% after June quarter nos; most brokerages bullish

Shares of Tata Motors rallied over 8 per cent on the BSE on Monday after the company on Friday released its June quarter numbers for the fiscal year 2020-21 (Q1FY21). 

At 09:47 am, the stock was trading nearly 5.5 per cent higher at Rs 110.40 on the BSE. The stock, in the early deals, hit a high of Rs 113.40, up 8.3 per cent against Friday's close of Rs 104.70. In comparison, the S&P BSE Auto index was up over 1 per cent at 16,693 levels while the benchmark S&P BSE Sensex was down nearly a per cent at 37,262 levels. 

Tata Motors' stock had hit a high of Rs 201.80 on January 15, 2020 while its 52-week low level stands at Rs 63.60, hit on March 23.

For the quarter under review, Tata Motors reported a consolidated net loss of Rs 8,438 crore against Rs 3,698 crore in the corresponding quarter of last year. The company's total revenue from operations nearly halved to Rs 31,983 crore during the period from Rs 61,467 crore in the previous year quarter.

Its flagship unit, Jaguar Land Rover's (JLR's) net revenue declined 44 per cent to 2.9 billion pounds in Q1 FY21. CLICK TO READ FULL REPORT

"The Covid-19 pandemic deeply impacted the auto industry in Q1 FY21," said Guenter Butschek, CEO and Managing Director of Tata Motors.

What brokerages say

Most brokerages have maintained their bullish stance on the stock post the company's June quarter results. 

Global brokerage firm CLSA, for instance, notes that the company's June quarter numbers were a significant beat to their estimates, driven by aggressive cost reduction. Both JLR and India business surprised on Ebitda and free cash flow (FCF) despite volume declines of 45-82 per cent YoY, it said. As a result, the brokerage has upgraded the stock to "BUY" with the target price of Rs 135. 

Analysts at Citi believe there are multiple drivers for JLR’s volume improvement, which should boost profits, due to operating leverage. It has a "BUY" rating on the stock with the target price of Rs 155. 

Domestic brokerage, Motilal Oswal Financial Services (MOFSL), also has a "BUY" rating with the target price of Rs 127. "We expect losses to gradually reduce in coming quarters and turn profitable only from 4QFY21. We have lowered our FY21E loss estimates by 8 per cent to factor in faster JLR volume recovery and cost-cutting initiatives. Maintain Buy with TP of Rs 127," it said in a result review note issued on August 1. 

Analysts at ICICI Securities, on the other hand, note that while Tata Motors' cost, cash flow focus is encouraging, the pace of demand recovery remains an unknown. "We await green shoots of revival before turning decisively positive," the brokerage says. 

It values Tata Motors at Rs 115 on sum-of-the-parts (SOTP) basis i.e. 10x and 3.5x EV/EBITDA (FY22E) to Tata Motors standalone business and JLR, respectively and retains "HOLD" rating on the stock.