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Tata Motors shares fall 6% to hit nearly 16-month low on weak earnings

LiveMint logoLiveMint 10-08-2017 Ravindra N. Sonavane

Mumbai: Shares of Tata Motors Ltd on Thursday fell as much as 6.1% to hit nearly 16-month low as many brokerages reduced their target price for the stock after the company reported weaker earnings in both Jaguar Land Rover (JLR) and Indian operations.

The stock hit a low of Rs391.25 a share, a level last seen on 24 May 2016. At 10am, the scrip was trading at Rs393.65 on the BSE, down 5.5% from its previous close.

So far this year, it has fallen 16.8%. Tata Motors DVR fell 6.4% to Rs226.90, while India’s benchmark Sensex Index fell 0.42% to 31,665.44 points.

JLR reported £442 million earnings before interest, tax, depreciation and amortization (Ebitda) in the June quarter, down 34% year-on-year and below brokerage firm Kotak Institutional Equities estimates of 27% due to higher realised forex losses which was at £545 million against the analyst estimates of £314 million.

Ebitda margin declined 460 basis points to 7.9% against the analyst estimates of 13.5%.

On the domestic front, a sharp drop of 34% in medium and heavy commercial vehicle sales led to a loss of Rs466.85 crore for the stand-alone entity against a profit of Rs34 crore a year ago.

“The quarter reflects mounting pressure on JLR’s profitability with limited currency related benefits, elevated discount levels and increasing investments in technologies/products. We believe the pressure points on JLR could continue. This more than offsets the benefits from new product launches in our view,” said IDFC Securities in a note to its investors.

Brokerage firm HSBC Global Research has lowered its target price to Rs500 a share from Rs550, Nomura has reduced its target price to Rs514 from Rs518, while Kotak Institutional Equities has cut its target price to R 540 from Rs560 a share.

In a post-earnings call with investors, JLR chief financial officer Kenneth Gregor said with the ramp up of new models such as the Range Rover Velar and new Discovery, overall marketing expenses are set to come down as newer models have lower discounts.

This, he said, will boost margins in the forthcoming months, Mint reported.

“We expect consolidated revenues to grow at 13% CAGR (compounded annual growth rate) over FY17-19E, led by growth of 12% in both JLR and stand-alone volumes. Consolidated earnings are likely to grow at a stronger pace, at 20% CAGR, due to lower hedging losses and higher earnings from China JV for JLR. Also, reduction in losses in standalone operations due to better scale, would support overall earnings,” said Emkay India, in a note to its investors.

Of the analysts covering the stock, 35 have a “buy” rating, seven have a “hold” rating, while four have a “sell” rating, shows Bloomberg data.

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