September 11, 2024
New Delhi, India
Tata Motors Shares
Shares of Tata Motors dropped nearly 5% in early trading on September 11, making it one of the top losers on the Nifty 50. This decline follows a report from brokerage firm UBS Securities, which reiterated a “Sell” recommendation on Tata Motors, citing potential downside risks.
Key Reasons for UBS’s Caution:
- Price Target and Downside Potential: UBS maintained its price target of ₹825 for Tata Motors, indicating a downside potential of over 20% from the previous close. The stock is already down 12% from its record high of ₹1,179, reached on July 30, 2024.
- Concerns Over JLR Margins: UBS highlighted risks stemming from margin slippage at Tata Motors’ luxury arm, Jaguar Land Rover (JLR). The brokerage pointed out that the order book for JLR’s premium models—Defender, Range Rover, and Range Rover Sport—has returned to pre-COVID levels, with the demand beginning to moderate.
- Discounts on Premium Models: UBS expressed concerns about potential increases in discounts for Range Rover models, which could negatively impact the brand’s profitability. “Should investors worry with JLR discounts spike?” the brokerage questioned in its note.
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Implications for Tata Motors’ Domestic Segment:
The report also noted downside risks within Tata Motors’ domestic passenger vehicle segment. UBS remains cautious about the future performance of Tata’s Indian operations, citing potential margin pressures.
Performance Overview for JLR:
- Revenue Growth: For the June quarter, JLR reported a 5.4% rise in revenue to £7.3 billion.
- Operating Margin: JLR’s operating margin (EBIT) improved by 30 basis points to 8.9%, driven by favorable volume, product mix, and material cost improvements.
However, Tata Motors indicated potential production constraints for JLR in the second and third quarters due to annual plant shutdowns and flooding at a key aluminum supplier.
Tata Motors’ “Festival of Cars” Campaign:
Recently, Tata Motors launched its ‘Festival of Cars’ campaign, offering significant price reductions for both electric and traditional vehicles for a limited time. However, this promotional strategy did not prevent the recent downturn in stock price.
Tata Motors shares are under pressure amid concerns about JLR’s margins and potential production constraints. The stock could face further downside risks if UBS’s predictions regarding discounts and market demand materialize. Investors will closely monitor Tata Motors’ upcoming performance and strategic moves to gauge the potential for recovery.
Tata Motors shares were trading at Rs. 972 a piece down 6% at 2:15 PM IST
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