Tata Motors share price jumps despite net loss doubling in Q1; should you buy or sell stock?

Shares of auto major Tata Motors are trading higher on Friday morning after it posted its Q1FY20 results on Thursday. Tata Motors shares jumped 4 per cent intraday to Rs 150.05 on BSE. The auto company’s consolidated net loss almost doubled in Apr-Jun to Rs 3,680 crore owing to a slowdown in the automobile sector. Its net loss stood at Rs 1,863 crore in the first quarter of FY19. Tata Motors’ consolidated revenue declined 29 per cent to Rs 60,830 crore on a quarterly basis and 8 per cent year-on-year.

Going by the company’s Apr-Jun earnings, Reliance Securities has downgraded Tata Motors stock to HOLD with the target price of Rs 139 per share amid weak demand in the domestic markets and uncertainty over Brexit. According to the brokerage firm, given the Apr-Jun EBIT margins at -5.5 per cent, along with Brexit uncertainties, it would be an uphill task for the company to achieve 3 per cent EBIT growth as reiterated by the management. Standalone margins are likely to remain under pressure on account of weakness in demand, uncertainties around pre-buy and increase in discounting, especially in the commercial vehicle segment. 

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“We currently factor in 5%/6% volume growth for JLR with EBIT margins of 2.3%/4.2% for FY20/21E. We downgrade the stock to ”HOLD” with the target price of Rs139, where we value JLR at 3x Mar’21E EV/EBITDA and Standalone entity at 8x Mar’21E EPS,” Reliance Securities said in a report.  

CLSA has maintained SELL with a target price of Rs 120 per share on Tata Motors stocks as the company reported worst pre-exceptional loss before tax in a decade. Earlier CLSA had the target price of Rs 140 for Tata Motors stocks. Meanwhile, investment bank Jefferies has maintained BUY on Tata Motors stocks with a target price of Rs 200. It noted that the JLR’s Q1EBITDA/EBIT disappointed even against muted expectations. The domestic auto business in India will remain under pressure due to a slowdown in the auto sector.