Stock Pick From Commercial Vehicle Sector

New product launches to drive growth

Tata Motors is one of the most well established Indian automotive brand and has strengthened its position in the Indian automobile industry by launching new products, investing in research and development, strengthening its financial position and expanding its manufacturing and distribution network.

The company aspires to position itself as a major international automotive company and has increased its presence in the global automotive markets while enhancing its product range and capabilities through acquisitions and alliances.

There has been steady improvement in the global economy and most of the developed nations are showing signs of improvement in GDP growth after sustained period of slowdown. The overall global economic growth spells positive sentiments for the luxury goods manufacturers. The automotive industry and demand for automobile are influenced by general economic conditions. The uncertainty over Brexit has had negative impact on Tata Motors, and as the uncertainty subsides over the issue, the company will get more clarity in its operations with regards to tapping Europe markets, which has shown good economic recovery and has traditionally been an important market for the luxury car maker.

The Way Forward:

1. Tata Motors will benefit from growth expectation in Land Rover on the back of launch of new  Discovery & Velar. 

2. The favourable product mix will help Tata Motors improve its ASP (Average Sales Price) growth. 

3. New product launches in the passenger segment are likely to help the segment grow faster. 

4. The company can save some cost by adopting a more modular strategy, i.e more models on fewer platforms

3.  The company management has been focusing on expanding its retail outlets in 2017-18 for JLR in India. The company currently has 25 retail outlets and is present in 23 major cities across India. It is expected that the company may add 2-3 more retail outlets in FY17-18. We expect the revenues to remain upbeat going forward as JLR continues the growth momentum. The consolidated revenues may grow at approximately 14-15 per cent CAGR in FY17-19E, on expectation of strong revenue growth in JLR of approximately 19 per cent during the same period. Tata Motors’s expansion plan focusing on JLR may yield returns for the company, where its intends to spend four billion euros towards new products, technology and expansion of manufacturing capacity.

4. The EBITDA margins may inch up for Tata Motors and the return ratios can be expected to improve. It is safe to say at this point of time that Tata Motor’s business is skewed towards the global business of JLR. The JLR’s strong product line-up and planned product refreshes suggests that the company can improve its market share. Now, with the stock trading at 452 with a multiple of  17.5, we think the stock is attractively priced. One can BUY Tata Motors at the current levels.