Don't give up on Tata Motors, Evoque is sure to drive volumes

The stocks of Tata Motors, the country’s largest commercial vehicle maker dropped 7.5 percent yesterday to touch an intra day low of Rs 268.55 after the company reported flat global vehicle sales growth in April compared to last year.

Tata Motors has sold 87,377 vehicles in April. Overall passenger cars sales were 49,369 vehicles, a rise of 7 percent from last year. Jaguar Land Rover (JLR) sales rose by 29 percent compared to last year while commercial vehicle sales slipped 8 percent.

But JLR’s sales when compared to last month has dropped 31 percent. Leaving out JLR’s Evoque, sale have dropped 39 percent compared to last month and 14 percent over last year, which is not good news. BMW and Mailer sales also fell 21 percent in April compared March worsening the numbers of JLR.

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The management has attributed the low sales to seasonality as April sales historically see a drop over March.

The management maintains the UK market always sees a large seasonal drop in sales in April and JLR has a higher UK exposure than its German peers which could explain the slip. Competitors of Tata in Europe and UK have given higher discounts in Europe and UK too.

But CLSA in its latest report says there is no sign yet of any demand weakness. It notes JLR has seen an average drop of 30 percent in volumes in the last 10 years, though the drop has been a lower 22 percent in the last two years. Though CLSA expected a lower drop this month compared to the previous one, they emphasise that Tata has maintained its guidance for 1,00,000-1,10,000 Evoque volumes for 2013 and 4-6 percent growth for non-Evoque industry sales. This implies 2013 volumes of 3,70,000-3,80,000. CLSA is factoring in sales at 3,90,000 units.

CLSA explains it has factored in a Evoque sale growth of 8 percent for the current financial year. Even if the growth comes down to zero, their target price would come down to Rs 340. That is much above the current price of Rs 273.

It is also bullish on the stock as it sees multiple volume triggers in the form of Evoque ramp-up and the launch of the new Range Rover platform by 2012 end. “Multiple cost initiatives are underway, which together with an improving regional sales-mix and favourable currency trends, should drive strong margins,” CLSA writes.

It maintains a Buy with a target price of Rs 370.