Brokerages upbeat on Tata Motors despite loss in Q1; here’s why

Brokerages retained their positive view on Tata Motors even as the company on Friday posted a consolidated net loss of Rs 8,443.98 crore for the first quarter ended June 2020.

It had posted a net loss of Rs 3,679.66 crore in the year-ago quarter.

Edelweiss Securities said the homegrown auto major continues to outperform on the balance sheet as well as cost control initiatives. This is reflected in the sharp reduction in its free cash flow drawdown (adjusted for temporary inventory blockage) despite a 48 per cent YoY drop in Q1FY21 revenue.

The brokerage maintained positive stance on Tata Motors with a target price of Rs 141 (earlier Rs 127 earlier) to factor in a significant improvement in Chery Jaguar Land Rover (CJLR) profitability and volumes, a sharper FY21 cost-reduction target in JLR and a better-than-expected demand tailwind for Defender.

The scrip traded 4.82 per cent higher at Rs 109.75 at around 11.50 am (IST), while the benchmark BSE BSE Sensex was down 0.98 per cent at 37,238 at around the same time.

Another brokerage Elara Capital retained ‘Accumulate’ rating on Tata Motors with a target price of Rs 119. “We are encouraged by management commentary on demand in most markets from July. Further, the newly launched Defender volume has seen strong demand traction (order backlog already at 30,000 units) and could be a tailwind for volume,” the brokerage added.

Elara expects weakness in standalone operations to continue in FY21 but sees a sharp revival over FY22-23 as the medium and heavy commercial vehicle (MHCV) industry revives. The company-specific initiatives have started to bear fruit with project charge (cost-cutting initiatives) being ahead of target.

Total income from operations during the period under review stood at Rs 31,983.06 crore as against Rs 61,466.99 crore in the corresponding quarter of the last fiscal.

The company’s British arm Jaguar Land Rover (JLR) reported a 44 per cent dip in net revenue at 2.9 billion pounds during the first quarter.

Management expects JLR to report FCF positive in FY22, while standalone in FY21, Elara said.