News Hour: Tata Motors shares slump 6 per cent, brokerages turn bearish

Shares of India's largest automobile company Tata MotorsBSE -5.91 % slumped 6.26 per cent or Rs 19.60 to close the day at Rs 293.45 on NSE after it issued profit warning. The company said its British subsidiary, makers of luxury cars and sports utility vehicles, Jaguar Land Rover (JLR) unit is likely to report lower profit margin in October to December, third quarterly results. 

Tata Motors warned Jaguar Land Rover earnings before interest, taxation, depreciation and amortisation (EBITDA) may fall due to foreign exchange rate fluctuations and higher product mix of cheaper version of 'Evoque' sports utility vehicle sales which accounts for 30 per cent of Land Rover's wholesale sales. 

"We had indicated earlier that product mix would be poorer because of higher sales of the XF, Freelander and Evoque models" said Vijay Somaiya, Head of Treasury and Investor Relations at Tata Motors on a conference call to analysts of various brokerage houses. "Product incentives in the current year are also slightly higher than previous years" he added. 

Jaguar Land Rover said Free Cash Flow, which is cash from operations after capital spending is likely to be negative in third quarter. The company further said in fiscal year 2014 capital spending is expected to rise steeply to 2.75 billion dollars which will make cash flow negative for the year. Jaguar Land Rover is planning to set up new factories in China and other emerging markets. 

"We see this as a one quarter effect and expect sharp improvement in margins in fourth quarter. We recommend buying the stock in the event of a price correction" said brokerage house CLSA in a research note to its clients. 

In a notice to stock exchanges Tata Motors announced that JLR would raise 400 million dollars through issue of bonds to support its operational costs and future growth plans. 

"We believe JLR is currently in the middle of a significant product upgrade cycle, with 5-7 new products likely to come to market in 2013 and a number of other concepts/technologies potentially under commercialization. We believe Tata's share price could react negatively in the near term" said brokerage house Goldman Sachs in a research note to its clients. 

Jaguar Land Rover is planning to launch eight new vehicles in 2013, including a convertible sports car and a new hybrid Range Rover. The auto maker is due to report its earnings in February, but has not yet specified a date. 

"We expect JLR's EBITDA margins to fall 200 basis points quarter on quarter to 12.8 per cent. We believe net debt levels will rise for Tata Motors as both India and JLR business will be free cash flow negative." said brokerage house UBS in a research note to its clients. 

The profit warning came as a surprise for many analysts after Tata Motor shares had hit record high earlier this month on expectations of improving sales at JLR, especially in the key China market, and optimism about the launch of new models. Shares of Tata Motors have surged over 20 per cent during November and December last year.

(source:economictimes.indiatimes.com)