The Stock Analyst Note is a part of the Stock Analyst Report for Tata Motors. Click here to go to the truncated version of the Analyst Report on the stock. Registered Morningstar users can read the complete PDF (which includes our take on the firm’s valuation, growth and profitability) here.
Tata Motors delivered robust first quarter results on the back of continued strong performance of its Jaguar Land Rover JLR business. In line with our thesis, Tata Motors is primarily becoming a play on the success of its premium and luxury Jaguar and Land Rover brands and we are maintaining our INR 253 fair value estimate.
First quarter revenues increased more than 30% year over year driven by a solid 35% growth in JLR revenues which more than offset the 9% decline in the company’s domestic operations. Strong demand for new products such as the Range Rover Evoque and Jaguar XF combined with continued demand growth in China and other developing markets led to 34.4% volume growth for the company’s JLR operations.
China has quickly emerged as the largest wholesale market for Jaguar Land Rover and remains a key market for the company’s future growth. In contrast with the accelerating JLR business, Tata’s domestic operation was lacklustre.
Increasing competition from global OEMs such as Volvo, Mercedes and Navistar along with general weakening in demand led to a mere 1.3% volume growth and 3% market share decline (to about 56%) for Tata’s Indian commercial vehicle business.
In the domestic passenger vehicle segment, greater demand for competitors’ (Maruti and Mahindra) products led to 10% volume reduction and 1.5% market share decline (to about 10%) for the company. Tata’s first quarter operating margin increased by 100 basis points to about 11.1% owing to lower material costs and commodity prices and net income grew over 12% leading to INR 7.04 EPS compared with INR 6.29 year ago.
Management gave additional commentary about several initiatives to continue its growth momentum in the Jaguar Land Rover business while at the same time, contain and possibly reverse the slide in the firm’s domestic operations.
We expect JLR to drive Tata Motors' growth in the long-term; however, in the domestic market, we see the company facing a rough road ahead and expect competitive pressures to mount going forward.
