Expectations of recovery in Tata Motors’ India business boost investor confidence

Not surprisingly, the share price of Tata Motors continues to rise. The stock hit a new 52-week high on Friday, having risen more than 35% from its August lows.

CV sales for Tata Motors continue to improve with regular economic recovery and rising fleet utilization levels. With the monsoon season coming to an end, there is a possibility of more profit with increased freight traffic and improvement in truck fares.

The company’s CV sales during September saw a strong year-on-year improvement of 34%. For Q2, CV sales grew 57% year-over-year.

In the PV segment too, the company is making a mark with the help of a rich portfolio with regular new launches and a growing electric vehicle portfolio. The company reported 53 per cent year-on-year growth in PV sales during the September quarter.

“As India’s autocycle emerges from a multi-year low, we are confident that Tata Motors will deliver the most operating and financial returns,” analysts at Morgan Stanley Research said in their note. He added that the market share win in India’s PV and CV businesses could re-rate the name from the global luxury game to the global and India game.

The company is also seeing gains in strong market share. Analysts say the PV business market share stood at 10% during the first quarter of FY12, which is the highest since Q4FY16. This is also expected to improve the profitability of the segment. Morgan Stanley analysts said, “In fiscal 2013, the business will be moved to a separate less debt subsidiary; Aggressive cost-cutting and leveraged benefits will drive the PV business EBITDA margin to 8.5% in FY14 versus 2% in FY21.”

The company said the demand for cars and SUVs is expected to remain strong in the coming festive season, although the supply conditions of electronic components may remain challenging.

Chip shortage continues to be a challenge for all automobile manufacturers, which has also led to a fall in their share prices. Tata Motors stock had fallen over 20% from June highs to August lows on expectations of a sales impact due to chip shortages. The company had also issued a profit warning related to Jaguar Land Rover, anticipating the impact of the chip shortage on its sales during Q1 and Q2.

The JLR business is still facing challenges arising out of the semiconductor shortage. However, analysts expecting profit from this segment say the risk, however, is well understood by investors. Morgan Stanley analysts said the refreshed iconic Range Rover and RR Sport and an order book of 110,000 in FY13 should leave JLR free-cash-flow positive.