Tata Motors has been having a bumpy ride since early 2015. Weak volumes at Jaguar Land Rover (JLR), an exceptional loss due to the Tianjin port explosion and unfavourable forex movements have impacted profits in the last three quarters.

There have also been concerns over the slowdown in China, which is a major market for JLR vehicles. Investor apprehension is visible in the 42 per cent fall in stock price until now, from about ₹583 a year ago. However, the company looks well-placed to ride out these challenges over the next few quarters.

For one, compared to the lacklustre sales in the earlier months, JLR has seen double-digit volume growth since October 2015, backed by the new Jaguar XE, Jaguar XF and Discovery Sport. Strong demand from the US, the UK and other European markets has helped mitigate the impact of lower sales in China. The recently launched, lightweight, aluminium Jaguar XF, the 2016 XJ , the expected introduction of the new Jaguar XE in the US markets and the upcoming F-PACE crossover are expected to accelerate sales.

Cushioning slowdown impact Secondly, in view of the slowdown in China, the company has realigned prices of vehicles, such as the Evoque and the XE, and is also rejigging its marketing organisation there. It has begun local production of the Range Rover Evoque and Discovery Sport in China through a joint venture.

While low utilisation in this unit, price corrections and marketing efforts may exert pressure on JLR margins in the near term, ramp up in local production and improved sales from new vehicles, such as the XF and the 2016 XJ in China will help margins. With domestic CV on a cyclical upturn and passenger car prospects looking up with introductions, such as the Zest, Bolt and Zica, the outlook for India business is promising.

Long-term investors can buy the stock. It trades at about 15 times trailing 12-month consolidated earnings, much cheaper than peers, such as Maruti Suzuki and Mahindra and Mahindra trading at 20-25 times.

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