Tata Motors Still a Buy After Chip Shortage

KEY HIGHLIGHTST

  • Tata Motors First Quarter 21/22 retail sales significantly up YoY
  • Company expects semiconductor supply constraint increases in near term
  • Expects the situation will start to improve in the second half of the financial year

Tata Motors Ltd (NS:TAMO) shares fell 8.52% yesterday after the company said it is facing a chip shortage that could impact sales of its Jaguar Land Rover (JLR) units by up to 50%.

Tata Motors shares have moved up 194% in one year. The stock closed at Rs 108 on July 13, 2020. It closed today at Rs 317.25. Does this mean Tata Motors has run out of juice for a while?

No, say brokerages. Motilal Oswal Financial Services Ltd (NS: MOFS) has a target of Rs 400 on the stock in a year’s time with a buy recommendation. It says that the Indian commercial vehicle business will see a cyclical recovery while the passenger vehicle business is in a structural recovery and JLR will also recover cyclically.

Emkay Global has retained a ‘buy’ rating on the stock, but has reduced its price target to Rs 400 from Rs 410 earlier. It expects a strong cyclical upturn on the standalone business and JLR, margin expansion from operational efficiency and debt reduction.Tata Motors is the second largest bet in ace investor Rakesh Jhunjhunwala’s portfolio after Titan. As of March 31, 2021, the Big Bull held 1.3 per cent stake, or 42,750,000 equity shares of the company, worth over Rs 1,350 crore.

For the quarter ended June, JLR’s retail sales jumped 68.1 per cent on a year-on-year basis to 1,24,537 units with each geographical location reporting growth. This performance is largely aided by a small base for the year-ago quarter, which was marred by Covid-19.Some analysts see the chip shortage-led production warning as a negative surprise. “’Chip shortages remain a dynamic situation and it is difficult to forecast for the short term due to the unique nature of the semiconductor.

The brokerage firm has still maintained a positive view on the company, but cut its price target to Rs 375. “We retain our positive stance on Tata Motors NSE -2.65 % for the medium to long term, given its intent to reduce net debt, its alertness about the mega change of electrification in the global automotive segment and the focus on sustainable free cash flow generation,” it said.

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