Sales Resume at Tata Motors, But Skepticism Runs Deep for Investors

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Shares of Tata Motors Ltd continue to track the benchmark Nifty Auto, although the company is seeing a significant recovery in sales. Domestic sales were up 21.6% year-over-year last month, led by the passenger vehicle segment, a notable improvement after falling 81.9% in the June quarter.

Monthly figures for its main subsidiary Jaguar Land Rover (JLR) are not readily available for comparison. However, analysts said a recovery is underway in China, North America and the UK and indications are that the company will see a noticeable improvement, after a 42% drop in retail sales in the last quarter. . JLR sees traction for its recently launched Evoque and Defender vehicles, said Motilal Oswal Financial Services Ltd.

In addition, Tata Motors is scaling costs and reducing investment. It aims to make free cash flow positive in one to two years and a company near zero net debt thereafter. The June quarter results show the benefits of these measures, especially at JLR.

However, the stock is still 28% below its January highs. In addition, the recovery of commercial vehicles, an important business for Tata Motors in India, is only expected to pick up after about a year.

There are also concerns about whether the company will continue to see a recovery in sales. Tata Motors’ passenger vehicle business in India has been very successful with new models, helping the company to increase its market share to 9.5% in the last quarter. Nonetheless, sustained improvement in market share is required for Tata Motors to gain size in the Indian passenger vehicle market. It will be difficult, given the fierce competition, analysts said.

JLR also faces the difficult task of recovering market share. The company lost market share even as global auto sales were under pressure.

The loss of market share is noticeable in the rapidly growing Chinese market, where excess inventory at dealerships has resulted in discounts. JLR’s reorganization efforts are starting to bear fruit in China. However, regaining lost ground will be difficult. The growing preference for electric vehicles is also a drag for traditional car manufacturers, who are lagging behind in the development of new generation vehicles.

“The growing share of electric vehicles (EVs) and new players such as Tesla will likely put additional pressure on the market share of traditional original equipment manufacturers. Simultaneous investments in internal combustion engines and EV product development are likely to put pressure on cash flow for the foreseeable future, ”analysts from Macquarie Research said in a note.

To better manage costs and resist competition, Tata Motors is moving its passenger vehicle business in India to a separate unit and is seeking partnerships. JLR and BMW have already announced a collaboration. A strategic partner for the activity in India and the lasting success of the new products will reassure investors.

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