CLSA has maintained sell rating on Tata Motors with a price target of Rs 405 despite strong outlook on Jaguar Land Rover volume. The stock fell 2.2 percent intraday Friday, in addition to 1 percent loss in previous session.
The research house continues to like JLR's strong product pipeline and is factoring in a 12 percent volume CAGR over the next three years, but remains concerned on margins given a softening demand environment and weakening model/regional mix.
It feels the stock is expensive and trades at a around 50 percent PE premium (one-year forward) to BMW/Daimler (based on consensus estimates for these companies).
Consensus earnings have been cut by around 10 percent in the past three months despite a results beat in Q4FY17, it said while expecting more downgrades ahead.
The research house said analysis of global luxury autos shows that industry volume growth has moderated in recent months driven by softening demand in Europe and the US although China continues to grow well.
Global luxury auto industry volume growth has softened from 8 percent YoY in CY16 to 5 percent YoY in YTD-CY17. This is mainly driven a sharp moderation in European (including UK) volume growth from 12 percent in 2016 to just 4 percent in YTD-CY17.
US demand is also weak and industry volumes are flattish YoY this year. These regions together contribute around 60 percent of global industry volumes.
China (27 percent of global volumes) is the only major region where the growth rate is still holding up. Chinese luxury auto industry volumes are up 11 percent YoY in YTD-CY17 after 13 percent growth in 2016.
On the positive side, CLSA said JLR has been gaining market share in most regions led by the success of its new product launches.
Its global market share has risen 1.5 percentage points in the past two years from 8.0 percent in CY15 to 9.5 percent in YTD-CY17. The biggest gains have come from the US where JLR's share is up 3.7 percentage points since CY15. It has also gained around 1ppt share in Europe over this period.
JLR has regained part of its lost share in China but is still below the CY14 level before it started local production in the country, the brokerage house said.
At 12:35 hours IST, the stock price was quoting at Rs 445.20, down Rs 7.60, or 1.68 percent on the BSE.
Posted by Sunil Shankar Matkar
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