Tata Motors - Cars show first sign of improvement; CVs slide - ElaraCapital

- Along expected lines, Tata Motors posted yet another month of muted numbers, with total sales contraction at 35.6% YoY to 39,951 units

- The M&HCV segment continues to falter with January being the 24th consecutive month of contraction, down 14% YoY. Despite low base, we expect the next few quarters to remain in the negative zone

- An even more worrying trend is the accelerated contraction in LCV sales over the past 10 months; LCV sales in February was down by 59% YoY to 14,881 units, the lowest since December 2007

- On the PV front, car sales displayed some improvement, posting 16% YoY growth as base moderated and the company launched refreshes and variants

- We note that the recently showcased compact and super compact cars in the auto expo seem to hold good promise and can revive sales in the PC division sharply by H2FY15

- However, given a sharp cut in CV sales and rising discounts, standalone business is likely to stay in the red for the coming 2-3 quarters, before gradually improving profitability over FY16

Our view: Tata Motors has seen the worst of the ongoing demand slowdown in the 4W space, largely due to heavy exposure to CVs and the languishing car portfolio. However, it is likely to introduce new launches and refreshes in the upcoming months in the CV and PV segments. Some of these seem promising and are likely to revive volume from current low base. Coupled with steady performance at JLR (rich product mix-led margin story), earnings trajectory is likely to stay healthy. We remain positive on the stock.

Source : Equity Bulls

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