Tata Motors: Near-term JLR volumes may remain muted

Shares of Tata Motors have shed about 10%, closing lower for seven consecutive trading sessions on weak March quarter performance and worries about a slowdown in China. The stock is down 28% from its highs (Rs 605) posted in February 2015.

China's share of overall JLR volumes came down from 28% in 9MFY15 to 15% in the March quarter. This was due to falling luxury car demand in China and the phasing out of imported Evoque and slower ramp up of the Made in China version.

Tata Motors faces concerns both on the volume as well as profitability front.

An analyst at a domestic brokerage says that the move at the dealer level in China to form a union so that they can negotiate better with OEMs (dealer incentives have also gone up) is a negative for the company. There would be pressure on volumes in the near term given the China situation.

Analysts, however, expect the company to regain lost market share as volumes of China-made Evoque ramps up and the company starts production of Discover Sport.

Morgan Stanley analysts expect overall JLR wholesale volume growth to be at 17% in FY16 as against a growth of 9.5% in FY15. This is on the back of new product launches (XE, new XF, F-PACE) as well as a pick-up in volumes in the China JV.

On the India operations front, the company reported an operating profit of Rs 160 crore in the March 2015 quarter compared to Rs 640 crore loss in year ago quarter. While medium and heavy commercial vehicles are recovering, most of the demand is from the replacement side and there are no orders for new vehicles.

The worst performing segment is the light commercial vehicle segment, which continues to be a laggard, pulling down the commercial vehicle performance.

While the passenger vehicle segment is performing well (Zest, Bolt) and M&HCV segment is expected to grow a strong 28% over FY15-17, LCV recovery is likely to be in the second half of the current fiscal, believe analysts at Spark Capital.

Despite the near term concerns over JLR, according to Bloomberg, over 90% of the analysts tracking the stock have a buy with a consensus target price of Rs 611. Of this, about 85% of the value is attributed to JLR. From the current levels, there is an upside of about 40%.

Tata Motors