Hemmed in by negative developments on various fronts such as rising input costs and relentless interest rate hikes, the automobile bellwether stock Tata Motors Ltd dipped below the psychologically crucial Rs 1,000 mark in the share markets on Tuesday.

It remained below that level on Wednesday too and hit its 52-week low at Rs 974.20, as the overall market remained nervous ahead of the RBI decision on Thursday on interest rate hike.

30-day loss

Tata Motors, which had hit a 52 week high of Rs 1,382 in the NSE, has witnessed a sharp decline in its share price since then to close at Rs 993.60 today.

Much of the decline has come in the past 30 days — 18.27 per cent fall — which is surprising.

Other things being equal, the company has not had the sort of negative news flow that hit Hero Honda, due to separation of Honda from it, or Maruti, because of the ongoing labour problem at Manesar plant. Even its Singur trouble had been priced in as Tata Motors had shifted production of Nano to Gujarat long ago. Yet it has suffered the most in percentage terms in the last one month compared to other Nifty-listed auto majors in the past one month.

The decision on interest rates to be announced by the RBI on Thursday and, more importantly, the policy direction that may take shape in the coming months while dealing with inflation may be crucial, as interest rates have gone up steeply in the last 18 months.

This has pushed up the cost of borrowing for not only cars but other important purchases like homes as well.

According to Mr Yaresh Kothari, Research Associate-Auto, Angel Broking, “The stock price has corrected due to lower than expected fourth quarter results mainly due to 150 basis points contraction in operating margins on the consolidated front. Even at the standalone level, margins were lower than expected. Further, there are concerns related to volume growth in the domestic markets due to rising interest rate and fuel prices.”

UBS, which came out with sell recommendation on Tata Motors with a 12-month target price of Rs 920, said, “We believe earnings are likely to remain stagnant as JLR depreciation spend will rise rapidly to catch up with high R&D capitalisation. We believe with limited free cash flow generation due to high capex at JLR, the debt is unlikely to decline meaningfully and interest cost is likely to remain high.”

Push from JLR

Tata Motors' performance now depends on the performance of JLR, which contributes more than 75 per cent of profits.

Passenger vehicles contribute nearly 25 per cent of volume for the company. Further, the passenger vehicle volume has seen a y-o-y decline in May after a flat y-o-y growth in April, Mr Kothari added.

Tata Motors today said the Tata Motors Group global wholesales, including Jaguar Land Rover, were 88,251 numbers in May 2011, a growth of 11 per cent over May 2010.

Cumulative sales for the fiscal are 175,370, higher by 11 per cent compared to the corresponding period in 2010- 11. Global sales of Jaguar Land Rover in May 2011 were 22,296 vehicles, higher by 17 per cent.

Jaguar sales for the month were 4,221, lower by 18 per cent, while Land Rover sales were 18,075, higher by 30 per cent.

However, KR Choksey Research recommended a buy call on Tata Motors with a price target of Rs 1,360.

It said: “The company maintained its positive outlook for JLR with China being its major market. With new products and refreshes planned in FY12 the company expects the PV's to do well for the company. It expects LCV segment to grow in the CV space and has started capacity expansion for the same.”

Related Topics