MUMBAI: Shares of Tata Motors declined 6 per cent on Monday, its third-biggest single-day fall in last one year, after analysts raised concern over JLR’s weak volume outlook, rising competition in SUV market and cash flow pressure. Analyst cut Tata Motors FY20 EPS by 3-7 per cent due to higher-than-expected capex and lower volumes.
The stock, which declined 33 per cent so far this year, is currently trading at 10 times FY19 consolidated earnings compared to 6-7 times of BMW’s and Daimler.
During the analysts meet, the JLR management was cautious on its demand outlook citing headwinds from diesel uncertainty, Brexit and weak a demand cycle in the West. JLR reiterated its strong focus on electrification and its plans to gradually shift its portfolio to a modular architecture which will support multiple powertrains.
However, analysts said that its focus on portfolio electrification and huge capex would put pressure on company’s cash flows. “JLR’s cash flow should also remain under pressure in FY19-20 due to its large investment needs,” said a note by CLSA.
“We remain negative on JLR given multiple headwinds for the stock which are unlikely to be offset by its smallersized India business.”
The management has lowered longterm volume estimates across regions.
Management expects the share of SUVs to rise to 52 per cent from current 48 per cent. Persistent weakness in the demand environment for JLR and higher discounting are impacting JLR, said analysts. “Increasing average portfolio age for JLR and higher discounting are likely to cap margin expansion,” said Chirag Shah, analyst at Edelweiss Securities.