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Foreign brokerage CLSA has maintained ‘sell’ rating on Tata Motors saying that India business has cyclically peaked while Brexit uncertainty is rising and JLR volumes remain under pressure.
The brokerage’s target price of Rs 150 on the stock implies a potential downside of 14.4% from Thursday’s closing levels.
Shares of Tata Motors declined 2.72% to close at Rs 175.35 on the BSE after the brokerage retained the ‘sell’ call.
The stock has fallen 63% since 2017.
“Despite the sharp stock fall and valuation looking inexpensive…we believe stock will remain under pressure given: 1) India’s truck industry is likely to head into a downturn, 2) big uncertainty of Brexit, and 3) insufficient near-term triggers to drive meaningful improvement at JLR,” said CLSA.
CLSA said India’s truck industry is in the fifth year of upcycle, while historical upturns in the last four decades has lasted four years on average.
CLSA sees high likelihood of a downturn ahead especially with new axle norms raising freight capacity of existing fleet.
Competition should also intensify in a downturn due to Ashok Leyland’s improved ability to fight against Tata, said CLSA.
Referring to the global challenges, CLSA said that even the potentially best-case scenario of a second referendum in the UK and no Brexit would likely result in a stronger pound, which would be negative for JLR.
The stock may appear cheap but is unlikely to perform because of the challenges, said CLSA.
