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    Can Jhunjhunwala’s latest pick turn into a money-minting machine?

    Synopsis

    Even though the automaker widened its losses year-on-year in September quarter, it still managed to beat analysts’ estimates on profit and revenue by a wide margin, cheering many on Dalal Street. The superior performance was led especially by a recovery at Jaguar Land Rover (JLR).

    Ace investor Rakesh Jhunjhunwala bought a stake in the company during the September quarter.

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    NEW DELHI: Solid smart money flow into the counter, a clear earnings beat, an encouraging management commentary and bullish outlook from brokerages – everything is suddenly looking right for Tata Motors.

    If investors were waiting for the right time to invest in the stock, the time is now.

    Even though the automaker widened its losses year-on-year in September quarter, it still managed to beat analysts’ estimates on profit and revenue by a wide margin, cheering many on Dalal Street. The superior performance was led especially by a recovery at Jaguar Land Rover (JLR).

    “The quarterly numbers showed initial signs of volume recovery and benefits of the recent cost-cutting initiatives. This, coupled with the return of normalcy in working capital and tight capex control, resulted in free cash flow turning positive,” said Jinesh Gandhi, Research Analyst at Motilal Oswal.

    The company said there was a strong positive free cash flow of around Rs 2,300 crore for the domestic business during the quarter while JLR’s free cash flow stood at £463 million after a £531 million investment spending.

    Gandhi believes an improvement in the mix and tight cost and capex control would drive sharp improvement in operating performance and debt reduction going forward. He revised his price target on the scrip to Rs 230, meaning a potential upside of nearly 75 per cent from current market price. The stock traded 2 per cent down at Rs 131 in a depressed market on Thursday.

    The company has disappointed investors in the past with dismal returns, as it struggled to grow and the debt burden swelled. The stock is down 27 per cent year to date, 76 per cent for three years, 89 per cent for five years and 67 per cent for 10 years.

    Ace investor Rakesh Jhunjhunwala bought a stake in the company during the September quarter. He owned 4 crore shares, or 1.29 per cent, in the automaker as of September end. Foreign portfolio investors increased their holding in the stock to 15.84 per cent from 15.62 at the end of June.

    Analysts said the tide may be turning for the stock. “The overall outlook remains encouraging. A sharp recovery in wholesale business should drive the benefits of operating leverage. Balance sheet improvement remains on course, driven by a strong focus on cost reduction and improvement of the product mix -- key underpinnings of our Braveheart recommendation,” said Chirag Shah of Edelweiss Securities.

    Shah, who has a 12-month price target of Rs 197 on the stock, said the demand outlook continues to improve across segments. For the CV business, the management said the macro factors are getting better than expected, while in the PV business, the company continues to gain market share driven by its refreshed product portfolio and realignment of the dealer incentive structure. The demand outlook for JLR is also strong, he said.

    During September month, Tata Motors saw a 163 per cent year-on-year jump in sales becoming the third largest automaker in India. JLR is also seeing good demand, with China leading the growth. Sales in the region jumped 28.5 per cent in September. The management hopes both domestic and JLR businesses will continue to improve, especially during the ongoing festive season.

    “The consensus estimates are discounting a relatively low success rate for JLR to remain self-sustaining and achieve meaningful deleveraging. The enhanced management focus on free cash flow generation coupled with improving domestic business positioning in the PV segment are likely to rebuild investor confidence,” said Nishant Vass of ICICI Securities.

    He has a price target of Rs 197 on the sock, which translates into a 45 per cent upside from current price.
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    5 Comments on this Story

    Jerard Nayagam15 days ago
    This company is a wealth destroyer ,it's domestic biz looks vulnerable with heightened competition in cv and pv , pv and scv biz barely make money , all depends on jlr ,which is facing huge headwinds ,do not enter this scrip it's a waste of time and money.
    Binu Pillai27 days ago
    ICICI SECURITIES is the biggest fraud who keep giving false recommendations
    arindam_cts27 days ago
    Pls tell us the price at which he bought.
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