'Tata Motors could be a Rs 700-800 stock if it exits passenger vehicles'

Tata Motors should consider exiting its loss-making domestic passenger vehicles business and focus on commercial vehicle sales as well as boosting the Jaguar Land Rover brand in India, Prakash Diwan of Altamount Capital told CNBC-TV18 today_._

Diwan was discussing the contrasting fates of Tata’s local business, especially in the passenger-vehicles segment, and its British subsidiary JLR, which Tata acquired six years ago.

“I wish the (Tata) management decides it wants to hive off its PV business,” he said, adding that Tata Motors could a “Rs 700-800” stock if such a decision were announced.

Tata Motors’s posted a 212 percent profit jump in the June quarter, thanks to a robust performance by the British subsidiary Jaguar Land Rover. T

ata Motors posted a consolidated net profit of Rs 5,398 crore on sales of Rs 64,683 crore, compared to profits of Rs 1,726 crore on sales of Rs 46,796 crore in the June 2013 quarter.

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The earnings prompted brokerages to increase their target prices on the stock.

Tata bought JLR from Ford for $2.3 billion in 2008 when the company was saddled with debt and was struggling to revive sales. Todat JLR is a stunning turnaround story.

In FY2010, it posted a loss of Rs 322 crore on sales of Rs 49,369 crore while in FY14, its net profit jumped to Rs 17,406 crore on sales of Rs 189,641 crore.

“Jaguar Land Rover has been a secular growth story, especially in the Chinese market,” Diwan said.

The firm today has a 24 percent market share in the fast-growing Chinese luxury PV market, thanks to a host of successful launches such as the Range Rover Evoque and the Jaguar F-Type coupe. The contrast is stark when JLR is compared to the disappointment that has been Tata’s domestic business.

Its standalone sales have slumped from Rs 38,173 crore in FY2010 to Rs 34,319 crore while profits fell from Rs 2,240 crore to 334.52 crore. Tata’s share in the passenger vehicle market fell from a peak of 14 percent in 2010 to 5.8 percent in 2014, as an ageing product line-up, coupled with continuing quality concerns and a less-than-impressive dealership network, took a toll on its local business.

Diwan said Tata Motors would well served by focusing on its commercial vehicles business, in which it has a 54 percent market share, along with JLR in India. “The domestic business is a drag,” he said.

“Look at the number of people and facilities it is using.”

Incidentally, Tata is launching its first passenger vehicle in four years today: the Zest compact sedan is slated to hit the roads today, which will go head-to-head with the Maruti Swift DZire, Honda Amaze and Hyundai Xcent. The company has billed the Zest, along with its to-be-launched hatchback sibling Bolt, as a gamechanger and has incorporated a host of class-leading features, as well as a semi-automatic transmission that was first seen in the Maruti Celerio.

Other analysts, however, have expressed hope that the two launches would help in turning around the fortunes of Tata’s PV business. “These products possibly mark the turning point and are certainly the most tangible results to date of Tata Motor’s Horizonext strategy and its design innovations that should make the offering more attractive to new consumers,” rating agency Moody’s recently said in a note .