Tata Motors Decline in Share Prices affected other Auto Shares

As of today, September 12, 11:02, the price of Tata Motors shares is ₹969.8, which is a 0.64% decrease from the previous closing price. And Nifty Auto shows a slight growth of 0.83% at 11:55 am. 

On September 11, 2024, the auto sector faced significant losses, with the BSE Auto index dropping by 1.20% (690.71 points), bringing it to 57,019.67 by 2:55 PM. 

• Nifty 50 Auto Index fell by 1.34% to 25,213.
• Tata Motors saw the largest decline, dropping 5.60%.
• Nifty Auto Index rebounded the next day with a gain of 0.83% by mid-morning.

Other major auto stocks also saw declines:

• Samvardhana Motherson International Ltd: down 3.04%.
• Ashok Leyland Ltd: down 2.90%.
• Mahindra & Mahindra Ltd: down 1.50%.
• Exide Industries Ltd: down 1.63%.
• Bosch Ltd: down 1.55%.
• Maruti Suzuki: smaller dip of 0.33%.

Tata Motors' steep decline impacted the broader auto sector.

Tata Motors Shares: Key Driver of Market Losses

Tata Motors' shares took center stage with a sharp 5.6% decline on September 11, marking their biggest single-day fall in nine trading sessions. Over this period, the stock has lost 12.8%, making it the worst performer on both the Nifty 50 and Nifty Auto indices.

The drop in Tata Motors’ shares was largely triggered by concerns from UBS. The global brokerage issued a warning about the impact of rising discounts and slowing demand on Jaguar Land Rover (JLR), Tata’s British luxury car division, which accounts for two-thirds of the company’s revenue.

UBS also expressed concerns about the lack of new internal combustion engine (ICE) and hybrid vehicle launches. As a result, UBS maintained a "sell" rating on Tata Motors stock, forecasting a price target of ₹825, 15.6% lower than its current trading price of ₹977.80.

Tata Motors’ top JLR models—Range Rover, Range Rover Sport, and Defender—are expected to face rising discounts, as JLR's order backlog has fallen below pre-pandemic levels. JLR's wholesales volume grew only 5% in the first quarter of the fiscal year, marking its slowest pace in two years. Demand has weakened, particularly in the European market, and August saw an 8.1% year-on-year sales decline.

To counteract this slowdown, Tata Motors has introduced discounts of up to ₹2.05 lakh on its domestic vehicles ahead of the festive season. However, UBS remains bearish on the stock, highlighting the risks of further downside, particularly for JLR.

Tata Motors: Mixed Market Sentiment

While UBS has a negative outlook, predicting a potential 20% downside from current levels, market consensus remains bullish. Out of 35 analysts covering Tata Motors, 23 have a "Buy" rating, 7 recommend holding the stock, and 5 advise selling. The median price target is set at ₹1,200, suggesting optimism from most market participants.

Shares of Tata Motors were trading 0.5% lower on September 12, continuing their downward trend from the previous session. The stock has now fallen 18% from its July 2024 high of ₹1,179 but has still gained 23% so far in 2024. Despite this recent slump, Tata Motors remains a notable performer, having doubled in value on the Nifty 50 index in 2023.

JLR Financial Performance and Outlook

For the June 2024 quarter, JLR reported a modest 5.4% rise in revenue to £7.3 billion. The division’s operating margin increased slightly to 8.9%, driven by favorable factors such as higher volume, mix, and improved material costs. However, the company warned that production could be constrained in the second and third quarters due to plant shutdowns and disruptions from floods at a key aluminium supplier.

While Tata Motors has managed to weather multiple challenges, including production issues and a slowing market, the outlook remains clouded by uncertainties surrounding JLR and domestic sales. Investors should remain cautious as the company navigates these hurdles in the coming months.

Sources: CNBC, Business Standars, and Money Control