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JLR losing speed, Tata Motors may find it difficult to attract investors

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ET Intelligence Group : Jaguar Land Rover (JLR), the engine that keeps Tata Motors going, is showing signs of sputtering in key overseas markets, and that’s unlikely to prompt an earnings upgrade estimate for the company in a hurry. In the past three months, the Tata Motors stock has lost about 20 per cent.

With JLR still to regain its lustre and projected earnings per share at Tata Motors falling 38 per cent since January 2017, reasonable valuations alone may not be enough to draw long-term investors back to the stock. JLR’s retail volumes dropped 8 per cent in March, paced by 16-26 per cent lower UK and Europe dispatches and moderating sales of its old models.

Recently launched E-Pace and Velar reported traction but could not offset the decline in sales of JLR’s older models. The age impact is showing on Range Rover, Range Rover Sports and Evoque.

In March, the old models saw a sharp volume contraction of 23 per cent.

The more worrisome part of volume growth is that ageing appears to be visible in much younger models such as F-Pace and Discovery Sport, which too started to show double-digit volumes decline. Furthermore, wholesale sales of cars — to the dealer by the vehicle maker — rose 6 per cent in FY18, while retail sales to the end buyer by the dealer increased just 2 per cent.

According to CLSA, in the past, JLR’s wholesale volume exceeded retail by 3-4 per cent in FY12 and FY16; YoY growths for wholesale in the subsequent year lagged retail by 4-5 per cent. The Street is pricing in volume growth of 6-8 per cent in FY19.

The wholesale volume growth in FY18 at 6 per cent has been the lowest since 2013 and nearly half the volume growth CAGR in the past five years. Weak European demand for diesel vehicles and low consumer demand ahead of Brexit in the UK have hit volumes in these two geographies that make up 40 per cent of JLR sales.

China, which helped cushion the impact in the first half of FY18, is also witnessing a moderation in volumes.

In the third and fourth quarters of FY17, volumes grew 15 per cent and 11 per cent, respectively, in China.

In the first half, growth was 25 per cent. After the recent correction, Tata Motors is trading at eight times its one-year forward projected earnings, nearly on a par with its longterm average.

The PE premium of Tata Motors, compared with global luxury car makers, has come down to 20 per cent from 50 per cent a year ago.




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