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Tata Motors' JLR retail volumes improve in China, UK; CLSA keeps TP unchanged at Rs 220 per share

Tata Motors' JLR retail volumes improve in China, UK; CLSA keeps TP unchanged at Rs 220 per share

Tata Motors' JLR retail volumes improve in China, UK; CLSA keeps TP unchanged at Rs 220 per share
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By Mousumi Paul  Oct 6, 2020 4:54:41 PM IST (Published)

Tata Motors shares ended at Rs 144.45, up almost 8 percent, after hitting an intra-day high of 145.80 apiece on the NSE.

Global brokerage CLSA has reiterated its 'buy' rating on the Tata Motors stock price, raising the target price to Rs 220, which has a 64 percent upside from the current levels. Tata Motors shares ended at Rs 144.45, up almost 8 percent, after hitting an intra-day high of 145.80 apiece on the NSE. From March low levels, the stock has gained about 128 percent. The 10-year return on Tata Motors remains negative at 35 percent, while YTD the stock has dropped almost 22 percent compared to 4 percent correction in Sensex.

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Tata Motors’ luxury brand - Jaguar Land Rover (JLR) has turned free cash flow positive in Q2FY21 on the back of a 53 percent QoQ rise in retail volumes, said CLSA in a report. China and UK markets are driving the recovery now.
Last year, the JLR division was under massive pressure after its sales plunged in the Europe market. With the overall recovery in the auto segment, JLR has shifted its gears. According to the brokerage, China retail sales rose 4 percent YoY in Q2, while the UK declined 3 percent YoY. The share of China in overall retails has also risen to 24 percent in Q2 v/s FY20 level of 18 percent.
"Expect JLR wholesale to be at 97,000 units (-28 percent YoY) which would be a 48 percent QoQ growth over Q1FY21 wholesales of 65,400 units", the report said.
In order to manage the company costs, the JLR division cut its employee count, freight and publicity costs. The work operating costs have risen on a per-vehicle basis due to negative operating leverage, but expect it to start declining as soon as volume recovers, explained the brokerage.
It further added that sequential volume recovery and cost cuts will drive free cash flow (FCF) turnaround.
"We forecast JLR/India CV/India PV volume to see a CAGR of 2 percent/9 percent/16 percent for FY20-23CL. JLR’s EBIT margin should improve from 0 percent in FY20 to 5 percent in FY23. We forecast FY21-23 FCF of £2bn for JLR and Rs 9bn in India. This should result in consolidated auto net debt declining from Rs 487bn in FY20 to Rs 379bn by FY23", the report concluded.
 
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