Tata Motors At Lowest In A Decade As Virus Stalls JLR’s Nascent Recovery

Among Indian companies that have seen the worst disruption from the coronavirus outbreak is Tata Motors Ltd.Shares of Tata Motors have tumbled more than 55 percent to their lowest in more than a decade since their January peak. That came after Jaguar Land Rover, Indian automaker’s British arm that accounts for 73 percent of its consolidated sales, saw its China-backed recovery stall.Tata Motors had surpassed estimates in the previous two quarters as its luxury carmaker, after months of contraction, was on track for a China-led recovery.Volumes in the world’s second-largest economy rose 24 percent even as sales outside that country declined 6 percent in six months ended December, according to Tata Motors’ filings. The margins for JLR bounced to 14 percent in July-September and 10.8 percent in October-December from a record low of 4 percent in April-June..But after a 25 percent year-on-year volume growth in six months through December and the strong first three weeks of January, coronavirus struck, according to a company statement. Retail sales in China tumbled 85 percent in February, it said, as only 20 percent of dealerships were open in the first half of the month.The spread of the virus to South Korea, Japan, and Italy will also impact sales, the company statement said. Both JLR and India operations are impacted by the supply-chain disruption.The management expects the coronavirus impact to reduce Jaguar Land Rover's full year EBIT margin by about 100 basis points and “modestly positive” free cash flow in January-March..Analyst Take.IIFLThe 100-basis-point impact highlighted by the management implies a 400 to 500-basis-point margin impact in the fourth quarter.After the third-quarter earnings, the company had guided for JLR maintained its guidance of 3-4 percent EBIT margins over FY21, 4-6 percent in FY23 and 7-9 percent beyond that.China sales expected to fall 50 percent year-on-year in January-March.Overall JLR sales in the fourth quarter are expected to be flat against the earlier forecast of 10 percent growth.Further risks if the virus hurts demand in the U.S. and European markets.Morgan StanleyRetains ‘Equal-Weight’ rating on the stock given the high capex nature of the business and low visibility on a turnaround in demand.Expects a 39 percent decline in China volumes over a year earlier in the fourth quarter, and an overall 4 percent drop in JLR volumes.The brokerage cut the target on the stock from Rs 155 to Rs 126 after the margin warning by the management. Tata Motors is currently trading around Rs 88.About 55 percent of the analysts tracking the stock recommend a ‘Buy’, according to Bloomberg data. An average of 12-month targets suggests upside potential of 128 percent—but that’s largely because of the steep fall in the shares.According to JPMorgan, JLR’s valuations are fair and phase of catch-up trade from low multiples is largely over. Progress on cost-cutting and margins are unlikely to support the stock because of the market environment, competitive intensity and weak pricing power, JPMorgan said. The rebound for the stock, it said, will hinge on a meaningful recovery in China..Tata Motors said JLR China and Chery Jaguar Land Rover staff have been working from home since the end of the lunar holiday due to the virus outbreak. But the offices and joint venture plant reopened in the week through Feb. 24 and now around 80 percent of the dealerships are open but with reduced staff.The positive news for the company is that China has been slowly easing restrictions. Luxury shoppers have emerged from quarantine and have started buying again, Bloomberg reported. And they could fuel “revenge-spending” spree, a term used to describe pent-up demand after the virus outbreak forced the rich had to cancel plans..Luxury Shoppers in China Emerge From Quarantine to Buy Again

Tata Motors At Lowest In A Decade As Virus Stalls JLR’s Nascent Recovery

Shares of Tata Motors have tumbled more than 55 percent to their lowest in more than a decade since their January peak.

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