Tata Motors: More gains from China recovery

The US, the UK, and Europe have supported Jaguar Land Rover's sales growth so far

Tata Motors’ stock, which had fallen to its 25-month intra-day low of Rs 279 on September 29, has since surged more than 30 per cent, eight per cent of which came in trade on Thursday. While the rally started with Jaguar Land Rover (JLR)’s North American sales showing a near 60 per cent rise for September, there could be more gains, as China sales are expected to rebound.

After North America, sales in Europe (up 37 per cent) and the UK (up six per cent), too, were good. These helped Tata Motors’ subsidiary Jaguar Land Rover (JLR) to post a three per cent year-on-year global sales growth to 47,634 units in September. Year-to-date sales numbers in the important markets of the US, the UK, and Europe, too, have been strong, reporting year-on-year growth of 15 to 21 per cent. The UK is the largest market, accounting for 34 per cent of sales, followed by Europe, 17 per cent.

Overall sales growth for September has come on the back of two new launches, the Discovery Sport and the Jaguar XE, which with 13,000 vehicles between them, accounted for 27 per cent of volumes.

So far, the worrying factor for the company has been the sharp drop in China sales. For September, sales in the market, which was its fastest-growing geography and second only to the UK a year ago, fell 30 per cent to about 7,800 units. Lower sales in the September quarter in China were due to the economic slowdown and production/replacement/launch of new models. These include local production of Range Rover Evoque, followed by Land Rover Discovery Sport. For Jaguar, the replacements include XF and XJ models. In addition to China, sales in rest of the world geographies such as Russia, Brazil, West Asia, and North Asia, were down 12 per cent for September.

Analysts, however, have increased their volume estimates for JLR for the second half, given recent numbers, launch of Jaguar XE, also known as the baby Jaguar, and recovery in China sales.

The other triggers, according to analysts at Ambit Capital, are the production of the Discovery Sport in China, price cuts in Evoque, and improving its distribution reach. These should lead to better volumes in the coming months.

Given the JLR recovery and cheap valuation (FY17 estimated price-to-earnings ratio of seven) most analysts continue to have a buy rating, with an average target price of Rs 485.