Tata Motors has gained over 20 percent in the last two days. Market expert Prakash Diwan, however, is bearish on the Tata Group auto major’s stock price. Diwan believes that the price move has been way ahead of the improvement in fundamentals and expects the stock to go into consolidation.
“The reason for caution is that the stock has had a superb run-up and it is a bit ahead of fundamentals or the improvement in fundamentals that is anticipated. So, it is due for a pause,” he told CNBC-TV18.
The balance sheet improvements need to be further strengthened, he said, while adding that uncertainty in key segments like China and the US could be headwinds to watch out for. Forex volatility too can add to the vulnerability, Diwan further said.
Taking a bullish view on the Tata Motors stock price, HDFC Securities’ senior analyst Aditya Makharia said that he remains positive on the India business turnaround as volumes have doubled in the Indian passenger vehicle business.
“If you look at the India business, which has been a perennial problem for them over the last few years, you see a sharp turnaround happening. If you look at the passenger vehicle (PV) volumes for them in the India business, they are practically doubling on a year-on-year (YoY) basis. They are well in excess of 20,000 units and there is waiting or several of their models are sold out. So the company has turned a corner when it comes to EBITDA margins on the PV business which was always a problem child for them,” Makharia said.
Furthermore, Jaguar Land Rover (JLR) seeing a recovery in global demand gives comfort in terms of multiples, he said. Makharia also said that the company has cut down capex in both India and overseas business and that the balance sheet looks a lot better than it was earlier.
The company aspiring to be net debt-free in the next three years could be an additional trigger, he added. However, they will have to sell non-core assets or find a partner to do that.
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