Tuesday, UBS reiterated its sell stance on shares of Tata Motors (BO:TAMO) (NYSE:TTM) Ltd. (TTMT:IN) with a steady price target of INR825.00. The firm's analysis highlighted that Jaguar Land Rover (JLR), a subsidiary of Tata Motors, has experienced a favorable period due to strong demand for its premium models—the Defender, Range Rover, and Range Rover Sport. These vehicles have played a key role in enhancing the company's average selling prices (ASPs) and gross margins (GM).
According to UBS, JLR's strategy during the semiconductor shortage, which involved prioritizing production of its higher-margin models, has effectively reduced its reliance on lower-priced vehicles.
This approach has led to a significant expansion in the company's ASPs and GM, increasing from £49,000 and 26.7% in the fiscal year 2020 to £72,000 and 31% in the fiscal year 2024, respectively. Moreover, the reduction in sales incentives has positioned JLR at the lowest levels among its competitors.
The success of these premium models has also helped JLR to offset weaker recovery in its highest-margin market, China. The company's performance in China had been under pressure, but the popularity of these models provided a cushion against the impact.
However, UBS noted that the period of heightened success for these models is beginning to wane, with the order book now falling below pre-COVID levels. This indicates a potential moderation in demand for JLR's premium vehicles, which have been instrumental in driving the company's financial performance in recent years.
In other recent news, Tata Motors Ltd. saw a stock rating upgrade from Neutral to Buy by Nomura/Instinet, citing a strategic shift at its luxury vehicle division, Jaguar Land Rover (JLR). Goldman Sachs (NYSE:GS), Jefferies, and JPMorgan (NYSE:JPM) reaffirmed their ratings for the company, emphasizing its strategic initiatives and potential for growth.
The company's earnings growth is expected to be driven by increased average selling prices and profit margins, with projections indicating an expansion of JLR's EBIT margins from 7.8% to 10.1% by fiscal year 2027.
Tata Motors' plans to increase its market share in passenger and commercial vehicles have also been highlighted. The company is progressing with a demerger process expected to conclude within the next 12 months and aims to commence in-house manufacturing of lithium-ion cells by 2026.
In terms of financial performance, Tata Motors aims for its electric vehicle business to reach EBITDA breakeven by the fiscal year 2026. Notable recent developments include Goldman Sachs increasing its price target for Tata Motors in anticipation of the company's fourth-quarter earnings for fiscal year 2024. This revised target reflects factors such as product mix updates, pricing strategies, and currency fluctuations. These are the recent developments for Tata Motors.
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