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Gladiator Stocks - Tata Motors - ICICI Securities

Posted On: 2020-10-28 09:17:08


Buy Tata Motors in the range of Rs. 135.00-142.00 for target price of Rs. 172.00 with a stop loss of Rs. 124.00. Time Frame: Six months

Technical View

The auto sector has undergone a healthy base formation after witnessing a sharp up move during March-August. The past two month's consolidation in Tata Motors has taken a shape of a 'Symmetrical Triangle' pattern. Currently, stocks logged a resolute breakout from this triangulation pattern, indicating conclusion of secondary phase. In turn, this augurs well for acceleration of primary up trend. Hence, it offers a fresh entry opportunity to ride the next leg of the up move

The stock has taken more than seven weeks to completely retrace the preceding two week's sharp up move (Rs. 120-155). A slower pace of retracement above its 52 weeks EMA placed at Rs. 130, signifies robust price structure and higher base formation

The stock formed a strong demand zone around Rs. 124. We expect it to hold, going forward, as it is confluence of lower band of contracting triangle at Rs. 124 coinciding with September low of Rs. 122

In a nutshell, we expect the stock to resume its primary up trend and head towards Rs. 172 as it is the 80% retracement of the CY20 decline (Rs. 202-64) around Rs. 174

Fundamental View

- Tata Motors (TML) is the market leader in the domestic CV space, commanding ~42% market share as of FY20, with significant presence across M&HCV as well as LCV segments. Domestic CV industry has been a clear laggard since FY20 (~18 months of muted performance) amid a host of demand and supply side issues, however incremental outlook is now turning positive (ex-buses), with cyclical bottom for the key truck segment now in sight. TML is also present in all segments of PVs domestically, where its revamped product portfolio and new launches (Altroz and Harrier) have been performing strongly - leading to 310 bps market share improvement to 7.9% as of H1FY21. TML would be carving out PV (including EV) into a new subsidiary to enable greater focus on the vertical, showcasing its serious intent for the space domestically. The company aims to assume a leadership role in the sunrise Indian EV space (Nexon EV has 61% market share)

- Tata Motors overseas subsidiary Jaguar Land Rover (JLR) is a maker of premium and luxury PVs serving China, UK, Europe, North America and other markets. Post Covid, rebound in Chinese geography has been encouraging with sequential improvement being observed in other markets. Company's new launches such as Defender as doing good in the market place with company well placed to cater to this incremental demand

- For Q2FY21, TML posted strong margin performance (12.5%, highest in four quarters) riding on return to double digit margin trajectory in JLR (11.1%) and 2.9% India margins (including breakeven in PV operations). The company's continued focus on controlling costs and capex is bearing fruit, with JLR breakeven levels reduced to ~4 lakh units p.a. vs. ~5.75 lakh units p.a. 2 years ago. Under the costs and cash savings program 'Project Charge', the company has delivered 5.3 billion worth of improvements (including 0.6 million in Q2FY21), with enhanced target of 6 billion set to be achieved over the remainder of FY21E. Similar program in India envisages Rs. 6,000 crore savings in FY21E, with Rs. 2,500 crore achieved thus far

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Shares of TATA MOTORS LTD. was last trading in BSE at Rs.134.8 as compared to the previous close of Rs. 135.7. The total number of shares traded during the day was 10895926 in over 67948 trades.

The stock hit an intraday high of Rs. 143.15 and intraday low of 133.5. The net turnover during the day was Rs. 1512891968.

Source: Equity Bulls

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