Shares in Tata Motors have largely underperformed the benchmark indices and only recently the DVRs, plunged to a 52-week low. This is despite the markets seeing robust gains. However, the stock has seen a sudden jump and many brokerages are now bullish on the stock.
Domestic sales surge
Recently, the company's domestic sales of commercial and passenger vehicles for August 2017 surged by 26 per cent at 45,906 units, higher over 36,510 nos., in August 2016. This had largely to do with growing demand across segments and increased positive customer sentiments. Recently, in an interview the Tata Motors CEO said that the company was focused on turning around the domestic business. The company may also gain market share in the HCV segment, where it had lost ground.
Motilal Oswal turns bullish on Tata Motors
Brokerage firm Motilal Oswal recently placed a buy call on the stock with a price target of Rs 542 on the stock, after hosting the management at the 13th Motilal Oswal Annual Global Investor Conference. "The company's commentary and the available levers vindicate our view that the worst of operating performance is behind us. We are also now more confident about an impending turnaround in the operational and financial performance of JLR and India business," Motilal Oswal said in its recent research report.
Favourable model mix to augur well
HDFC Securities recently said that the the model mix is likely to turn favourable with the ramp-up of sales for Discovery and Velar, thereby improving margins. Post commissioning of the Slovakia plant, capex intensity for JLR is also likely to reduce from FY19. "JLR is expected to outperform industry, driven by a favorable product pipeline, with six launches planned over the next 12-15 months, including three new rollouts (Velar, E-Pace and I-Pace), one upgrade (Evoque) and two refreshes (RR and RR Sport). The company expects JLR's retail sales to grow 10% in FY18 (v/s+4% in FY18YTD and +16% in FY17)," Motilal Oswal has noted.
Forex hedging losses to reduce
The forex hedging losses, which has been impacting profitability is also likely to reduce substantially in the coming quarters, which could be a big trigger for the stock. The shares of Tata Motors have slumped from a 52-week high of Rs 545 to the current levels of Rs 402. In fact, the stock until a few days ago was trading at just Rs 375. The long term story at the company seems intact and it would not be a surprise to see levels of Rs 500 on the stock in the next few months.
Tata Motors DVR an option
The Tata Motors DVRs are trading at a substantial discount to the stock price. DVRs are nothing, but shares that have fewer voting rights than the normal shares. However, they do offer higher dividends. The DVRs are currently trading at Rs 230, while the equity shares are trading at Rs 403.
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