While there has been a spurt in optimism over the prospects of the automaker, analysts are divided as to whether it is a good buy at this point of time.
Over the past one month, the stock has raced ahead more than 30 per cent, with over half the gains coming in last one week. However, for the year to date, the stock is still down about 9 per cent.
The stock is down 60 per cent for last three years, 58 per cent for five years and 28 per cent for last 10 years.
Analysts have turned more bullish on the stock in last one month. The stock currently has 10 ‘strong buy’, 8 ‘buy’, 7 ‘hold’, 7 ‘sell’ and 2 ‘strong sell’ ratings, data from Reuters Eikon showed. This compares with 7 ‘strong buy’, 9 ‘buy’, 9 ‘hold’, 7 ‘sell’ and 2 ‘strong sell’ ratings it had a month ago.
While foreign institutional investors (FIIs) have raised their stake in the stock by 22 basis points in September quarter to 15.84 per cent, they have trimmed their holding at least since June, 2019, data from Marketsmojo.com showed.
Mutual funds, on the other hand, have consistently trimmed their holdings in the stock since September 2019, and currently hold 5.60 per cent stake.
Tata Motors’ losses widened to Rs 307 crore during September quarter from Rs 188 crore a year ago, as sales continued to be lower than that in the previous year. However, the company performed better than market expectations on the back of cost savings and deferred tax credit.
JLR, which accounts for about 80 per cent of the company’s revenue, returned to profitability with a pre-tax profit of £65 million. Revenue declined 29 per cent to £4,352 million.
Ace investor Rakesh Jhunjhunwala bought 1.29 per cent stake in auto major during the September quarter. Jhunjhunwala, also a key investor in other Tata Group firms such as Titan, Indian Hotels and Rallis India, held 4,00,00,000 shares in Tata Motors at the end of September quarter.
He told ETNow in October that he was confident of the company’s plans to become debt free. At the company's 75th annual general meeting (AGM) on August 25, Tata Motors Chairman N Chandrasekaran said the company was eyeing ‘near-zero’ debt over next three years, as it looks to significantly deleverage the business, cut expenses and put a leash on non-core investment.
“Impossible is the word for fools in my dictionary. Chandra would not talk on anything at the AGM unless he has a plan for it,” Jhunjhunwala had said.
“I have not taken a particular company or bought it because it belongs to Tata Group. I have bought it because of the company and because of what Tata Sons is doing. The emphasis is on cash flow and the correct business policies,” he said, explaining his interest in Tata companies.
Separately, promoter Tata Sons hiked its holdings in Tata Motors DVR to 7.14 per cent at the end of September from 5.26 per cent at the end of June.
Hemang Jani, Head of Equity Strategy for broking & distribution at Motilal Oswal Financial Services, said the announcement to turn debt free has provided a renewed boost to the stock.
“They seem to be making progress on it by exiting some assets and geographies, and at the same time the business is showing an uptick. That is giving a lot of comfort to investors,” said Jani.
“It will not be a stock where people want to have a larger allocation because of the way it has been moving and because of the moving parts around it. But I think it definitely merits investments in small proportions,” he said.
On November 11, HDFC Securities upgraded the stock to ‘buy’ from ‘add’ earlier, saying the original equipment manufacturer (OEM) will benefit from improving demand outlook, cost-cutting initiatives, and better FCF generation.
“JLR’s retail volumes are improving from Covid lows, and system inventories are normalising. We are building in double-digit volume growth at JLR over FY22/23E (12/11 per cent). The luxury OEM has turned FCF positive (+GBP 463 million in 2Q), a trend which we expect would sustain over FY22/23E,” HDFC Securities said in a note.
The brokerage said the loss-making India passenger vehicle (PV) business has turned the corner and reported a positive margin, driven by robust market share gains. This will improve domestic cash flows and make the PV business more attractive for potential partners.
While the fundamentals remain supportive, not everyone believes it was time to stock up on the scrip. “The next trigger for the stock is going to be the demerger of the passenger car unit. The scrappage policy can also boost the stock. JLR is doing well too,” said independent analyst Ambareesh Baliga
“However, I would be a bit cautious on the stock at current level. We need to see whether the recent uptick in volumes is sustainable or not. There are discrepancies on what manufacturers across the board are claiming and the channel checks with dealers,” he said.
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1 Comment on this Story
Rahim Vastad54 days ago