Thursday, July 21, 2011

Tata Motors Buy on correction

Tata Motors, a leading player in the global and domestic auto industry, benefited from a sharp improvement in the performance of its Europe-based marquee brands Jaguar and Land Rover (JLR) during FY11. Apart from strong vehicle sales growth, especially in China and Russia, the company's cost-saving measures in Europe also paid off.

As a result, the company's JLR operations reported a segment profit of Rs 7,700 crore for FY11, a rise of more than 140 times from a year earlier, while revenues in this segment grew by 42.3 per cent y-o-y to Rs 70, 218 crore. Total JLR sales grew 25 per cent y-o-y to 2.41 lakh units in FY 11 on strong demand.

JLRs operations accounted for nearly 57 per cent of Tata Motor's consolidated revenues of Rs 1,23,133 crore (approximately $27.4 billion) during FY11, and helped the company to deal with higher commodity input costs. Tata Motors has also improved its ranking in the latest Fortune Global 500 list to 359, from last year's rank of 442.

Tata Motors will shortly launch the SUV Evoque in Europe. Consumer interest for this model is understood to be strong. This should help the company to deal with the fallout of the European debt crisis. In addition, there are fears of a slowdown in the fast-growing BRIC countries. This has cast a shadow on its growth momentum in the short term. In the domestic market, auto finance rates are on the rise and there are signs of a slowdown in the broader auto sector. Tata Motors' consolidated vehicles sales (including JLR) grew 11 per cent y-o-y in the first two months of this fiscal.

Tata Motors is understood to have received strong consumer interest for its SUV Evoque, which will be launched soon. This should drive growth in Europe in the short term.

In its domestic operations, however, rising auto finance rates remain a key cause for concern. Also, while commodity prices have shown signs of easing, they still remain at elevated levels. The company has also approached the judiciary with regard to its dispute with the West Bengal government for its Singur land.

Investors could consider Tata Motors as an investment on a long-term basis. While 900 acts as a strong support 1200 could be big resistance, getting past it has a potential to reach 1500 in the next 1 year

The following table indicates the kind of returns Tata Motors gave to investors.

Time Span Price Change %Change
Today 975.55 6.85 0.70
Week 1,043.65 -74.95 -7.18
Month 930.25 38.45 4.13
Three Months 1,243.85 -275.15 -22.12
Six Months 1,188.20 -219.50 -18.47
One Year 812.50 156.20 19.22

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