Jump in Tata Motor stock is potentially attributed to the expectation that promoters will step in and rescue the company as well as the stock after its dismal performance, said Mahantesh Sabarad, Head, Retail Research, SBICap Securities, in an interview with ETNOW. When the stock tanked post its Q3 result, there was buying done by Tata Sons to the tune of Rs 250 odd crore.
CLSA has assigned a 40% upside to Tata Motors, but also said that all global auto stocks are in for a massive recovery. Is it just a JLR going to get sold specific trigger for Tata Motors or is it something bigger across auto sector?
As far as Indian market is concerned, automobiles are rebounding. They are now at a low. Considering the fact that most of the automobile companies have managed to either correct their inventories quite substantially or are in a position to correct their inventory pretty soon itself tells you that the volumes will rebound.
Following the volume rebound, you will have stock prices also rebounding and you do not have a situation now wherein costs are really impinging on the automobile companies. Valuations are also low. So that is happening as far as domestic market is concerned. Globally, of course, there is a difference in opinion because while some of the regions or some of the markets are poised to grow, we find distinctly the slowdown in China seems to be quite deep. That deep slowdown is therefore causing automobiles to really slip quite sharply down and luxury vehicles are particularly taking a larger hit and therefore most of the global automobile stocks are also suffering.
It is not JLR alone. Even a BMW or Volkswagen derive substantial profits from the Chinese market. Therefore to say that most of the global companies have also bottomed out is not perhaps right. There is a difference in opinion there. You have to take a specific call in terms of what is the earnings momentum for each of the automobile companies globally. We do know for example that JLR is facing problems.
What is the solution for that problem? Is it right to assume that the problem will not get sorted any time soon or could there be a turnaround in JLRs fortune?
The correct diagnosis of the problem is perhaps being done by the management themselves, but there is one clue available to us. That clue came in when the company chose to write down close to 3 billion pounds of the accumulated R&D expenses on the balance sheet side, which effectively tells us that the spends have been ineffective. In 10 odd years, R&D spends of close to 20 billion pounds have been done and now 3 billion pounds have been written off. It is like saying 15% of their R&D spends are turning out to be quite useless.
So, the management has to come out and rationalise spends on the capex side. On the R&D side, they have to get the maximum return on investments. It is about maximising ROI. Those steps are being taken and perhaps that is the solution. Cut down on the capex. See to it that the ROI is more effective that means you work on those projects where you have near certainty in terms oRead More – Source