Tata Motors' shares extended their losing streak on the bourses, slipping 3% to ₹901. This decline marks the second consecutive session of losses, with international brokerage UBS maintaining its 'sell' rating on the stock, citing weak growth prospects for the automotive giant.
With a price target of ₹825, UBS foresees an 11% downside from the previous close of ₹927, further contributing to the stock's recent slump. Tata Motors' share price has now fallen by 11% in just one month, adding to concerns among investors looking to invest in stocks.
UBS maintains a 'sell' rating on Tata Motors
UBS's decision to reaffirm its 'sell' rating on Tata Motors stems from a combination of weak market dynamics and unfavourable prospects, particularly in China. The brokerage noted that the Chinese market is no longer a high-growth region for global carmakers. While premium vehicle segments may exhibit some resilience, UBS anticipates that market share losses are likely to persist.
In its report, UBS also highlights the need for global automotive manufacturers, including Tata Motors, to rationalise their production capacities, adjust product offerings, and partner with local firms. For those looking to invest in stocks, especially in the automotive sector, this could be a sign of potential risk.
Declining demand for Jaguar Land Rover premium models
Tata Motors' subsidiary, Jaguar Land Rover (JLR), has also contributed to the bearish outlook. UBS pointed out that although premium models such as the Defender, Range Rover, and Range Rover Sport have historically driven up JLR's average selling prices (ASPs), demand for these high-end vehicles is now softening.
The company's order book has fallen below pre-pandemic levels, and UBS suggests that discounts on Range Rovers could increase in the near future. Additionally, the brokerage expects margin pressure to affect both JLR and Tata Motors' Indian passenger vehicle segment, a factor that may deter those planning to invest in stocks.
Challenges ahead for Tata Motors
For the June quarter, JLR posted a 5.4% revenue increase, bringing its total revenue to £7.3 billion. The company's operating margin, calculated as earnings before interest and taxes (EBIT), rose slightly by 30 basis points to 8.9%. This growth was driven by favourable product mix and material cost improvements.
However, JLR has warned of production constraints for the second and third quarters due to annual plant shutdowns and disruptions at a key aluminium supplier caused by floods. Such headwinds may impact the company's overall performance, raising concerns for those who are thinking about whether to invest in stocks like Tata Motors during this uncertain period.
What lies ahead for Tata Motors?
Tata Motors continues to face mounting challenges both globally and domestically. UBS's price target of ₹825 suggests further downside potential, and the weakening demand for Jaguar Land Rover's premium models only adds to the uncertainty.
Investors considering whether to invest in stocks should keep an eye on Tata Motors' performance in the coming quarters as the company grapples with market dynamics, production constraints, and margin pressures. While the automotive giant may have the capacity to navigate these hurdles, it remains a high-risk investment at present.
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