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Tata Motors shares fall 63% since January 9; should you buy the stock?

Aseem Thapliyal     December 6, 2018

The Tata Motors stock has been on a losing spree in the last one month due to a flurry of negative news such as low sales, crisis in Jaguar Land Rover, downgrade by credit rating agencies and poor earnings performance. The stock has lost 15% in the last 30 days and hit a fresh 52-week low of 164 on the BSE today. The stock has lost 61.79% since the beginning of this year and 58.48% during the last one year.

The large cap stock is trading below its 50 day and 200 day moving average of 179.76 and 242.94, respectively.

Also read: Tata Motors plans large-scale overhaul of its sales network

Tata Motors has been facing tough situations for long which have affected the stock.

In October this year, the homegrown automaker posted a loss of Rs 1,048.80 crore (attributable to shareholders) for quarter ended September 30 compared to profit of Rs 2,482.78 crore in the corresponding quarter last year.

Its luxury unit Jaguar Land Rover (JLR) reported a loss of 101 million pounds for September quarter. Free cash flow (automotive) came out to be negative at Rs 4,357 crore, reflecting lower operating profits at JLR.

In October, Jaguar Land Rover reported a 4.6 per cent decline in total retail sales at 44,282 units.

Sales in China fell 49 per cent as market conditions remained challenging amid tariff changes and continued trade tensions with the US, which are impacting consumer confidence and automotive purchases, Tata Motors said.

Last month, Moody's Investors Service changed Tata Motors' rating outlook to negative from stable, citing expectations of weak operating performance of the company's British arm Jaguar Land Rover (JLR). The ratings agency also affirmed the 'corporate family rating' and the company's senior unsecured instruments ratings at Ba2, which is considered to be speculative grade and subject to substantial credit risk.

"The negative outlook reflects JLR's weakening credit profile and the significant challenges in accomplishing a rapid turnaround amid heightened market risks and headwinds from rising input costs and fuel prices, as well as adverse impacts from the outcome of the Brexit negotiations," Moody's said.

 In the beginning of this month, the automaker reported a 3.8 per cent fall in domestic sales to 50,470 units in November as compared to 52,464 in the same month last year.

This was "due to low consumer sentiments as a result of liquidity crisis in the industry, higher interest rates and rising fuel costs," the company said.

Tata Motors' Commercial Vehicles (CV) domestic sales declined 5.15 per cent in November to 33,488 units compared to 35,307 sold last November.

To add to the firm's woes, S&P Global Ratings downgraded the credit rating of the homegrown auto major and its British arm Jaguar Land Rover Automotive Plc on November 4.

Tata Motors' issue credit rating and senior unsecured notes rating have been revised to 'BB-/negative watch' from the existing 'BB' due to weaker profitability at JLR, the company said. Similarly, the issuer credit rating and senior unsecured notes rating of JLR have been revised to 'BB-/Negative Watch' from 'BB' due to weaker profitability, S&P added.

The stock has fallen 62.98% till date from its 52-week high of 443.55 reached on January 9, 2018. From the house of the reputed Tata Group, the stock is among the cheapest in the auto sector currently.

Tata Motors' rivals Maruti Suzuki (Rs 7,261) , Mahindra and Mahindra (Rs 714) trade higher than its current stock price of 164.35.

Even as the stock seems to be on a losing spree, we find out whether is it a good time to buy Tata Motors at current level.


The international brokerage is bullish on the stock with a target price of Rs 260. It said JLR November  US retail volume rose 19% year-on-year compared to the estimate of 12%.

It has factored in 10% decline in global wholesales for JLR in November. Currently, the brokerage is factoring in 7% decline in overall JLR volume in FY19. The brokerage expects Q4 to be better on ramp-up for I-Pace & launch of E-Pace.

Morgan Stanley

The brokerage is equal weight on the stock with a target price of Rs 198. North America sales have been driven mainly by the Land Rover portfolio.  The peaking global auto cycle keeps the brokerage equal-weight on the stock.

Vinay Rajani, technical analyst at HDFC Securities said, "Tata Motors has been trading at its 52-week low. It has been forming lower tops and lower bottoms. Though it looks oversold on the charts, one should not try to catch a falling knife. Trend is bearish. Long term support is seen at 135-140 range. Immediate resistances are seen at 175 and 188. 

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