Buy Tata Motors, target price Rs 126: Motilal Oswal

Motilal Oswal has given a buy rating to Tata Motors with a target price of Rs 126. The share price moved up by 0.79 per cent from its previous close of Rs 107.55. The stock’s last traded price is Rs 108.40. Jaguar Land Rover (JLR)’s wholesale volumes declined 44.8% YoY to ~65.4k units (v/s est.: ~49k) in 1QFY21, whereas volumes for the China JV grew ~15% YoY at ~16.5k units. Jaguar volumes fell ~54% YoY to ~18k units, whereas Land Rover (LR) volumes contracted ~40% YoY to ~47.5k units.

Financials
For the quarter ended 31-03-2020, the company has reported a Consolidated sales of Rs 61949.39 Crore, down -12.81 % from last quarter Sales of Rs 71051.42 Crore and down -27.69 % from last year same quarter Sales of Rs 85676.33 Crore Company has reported net profit after tax of Rs -9671.25 Crore in latest quarter.

Investment Rationale
According to the brokerage, over 95% of JLR’s retailers worldwide have totally/partially restarted their operations by now; moreover, all of the company’s plants have resumed manufacturing, with the exception of the Castle Bromwich facility, which would gradually start up again in August. All plants are operating on single shifts, with social distancing measures in place and production ramping up as demand increases.

Post the resumption of operations, the Range Rover Sport, the new Range Rover Evoque, and the Land Rover Discovery Sport emerged as the bestselling vehicles. Customer response to the new Land Rover Defender has been overwhelmingly positive, and as retailers have come back on line, there has been a surge of interest in the Land Rover. Deliveries for the Defender have started to ramp up in the quarter, with 1,970 vehicles sold in June. This has come after operations only just resuming in the UK/Europe (May) and the US (June); China operations are scheduled to begin in July.

JLR ended 1QFY21 with a stronger-than-expected cash position of nearly £2.7b (unaudited) and overall liquidity of around £4.6b, including the company’s £1.9b revolving credit facility, which remains undrawn.
The brokerage maintains buy stance with TP of ~INR126 (Jun’22-based SOTP). The stock trades at 2.7x FY22 EV/EBITDA and 0.7x P/BV.

Promoter/FII Holdings
Promoters held 42.4 per cent stake in the company as of March 31, 2020, while FIIs held 16.8 per cent, DIIs 13.6 per cent and public and other 27.2 per cent.