Tata Motors share skids to fresh 52-week low; time to buy the stock?

Continuing its downward journey, the Tata Motors stock fell for the third consecutive day after its UK subsidiary Jaguar Land Rover (JLR) reported a fall in November retail sales. The Tata Motors stock touched a fresh 52-week low of 160.75 compared to its previous close of 162.40 on Thursday. The stock has lost over 17% in the last 30 days and hit a fresh 52-week low of 164 on the BSE yesterday.

The stock has lost 59.59% during the last one year and fallen 62.31% since the beginning of this year. The large cap stock was trading below its 50 day and 200 day moving averages of 179.77 and 241.99, respectively.

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25 of 40 brokerages rate the stock "buy" or 'outperform', 12 "hold", two "underperform" and one  "sell", according to analysts' recommendations tracked by Reuters.

Jaguar Land Rover logged a 8 per cent decline in retail sales at 48,160 units in November as compared with the same month last year.

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The Tata Group firm said a fall in sales during the month reflected continuing challenging market conditions in China, while other major markets were up.

The Jaguar brand retail sales grew 8.9 per cent to 14,909 units last month, against the year-ago period, driven by the introduction of the E-PACE and I-PACE, partially offset by lower sales of Jaguar sedans and the F-PACE, Tata Motors said in a statement.

Land Rover sold 33,251 vehicles in November, down 14 per cent year-on-year.

Sales in China were 50.7 per cent lower than a year ago as market conditions remain difficult with continuing consumer uncertainty following tariff changes and trade concerns, the company said.

Jaguar Land Rover continues to work closely with retailers in China to respond to the present market conditions, it added.

The Tata Motors stock has been reeling under pressure for long due to crisis in its UK subsidiary JLR and weak earnings and sales at home.

In October this year, the homegrown automaker posted a loss of Rs 1,048.80 crore (attributable to shareholders) for quarter ended September 30 compared to profit of Rs 2,482.78 crore in the corresponding quarter last year.

Its luxury unit Jaguar Land Rover (JLR) reported a loss of 101 million pounds for September quarter. Free cash flow (automotive) came out to be negative at Rs 4,357 crore, reflecting lower operating profits at JLR.

In October, Jaguar Land Rover reported a 4.6 per cent decline in total retail sales at 44,282 units.

Sales in China fell 49 per cent as market conditions remained challenging amid tariff changes and continued trade tensions with the US, which are impacting consumer confidence and automotive purchases, Tata Motors said.

Last month, Moody's Investors Service changed Tata Motors' rating outlook to negative from stable, citing expectations of weak operating performance of the company's British arm Jaguar Land Rover (JLR). The ratings agency also affirmed the 'corporate family rating' and the company's senior unsecured instruments ratings at Ba2, which is considered to be speculative grade and subject to substantial credit risk. In the beginning of this month, the automaker reported a 3.8 per cent fall in domestic sales to 50,470 units in November as compared to 52,464 in the same month last year.

This was "due to low consumer sentiments as a result of liquidity crisis in the industry, higher interest rates and rising fuel costs," the company said.

Tata Motors' Commercial Vehicles (CV) domestic sales declined 5.15 per cent in November to 33,488 units compared to 35,307 sold last November.

To add to the firm's woes, S&P Global Ratings downgraded the credit rating of the homegrown auto major and its British arm Jaguar Land Rover Automotive Plc on November 4.

Tata Motors' issue credit rating and senior unsecured notes rating have been revised to 'BB-/negative watch' from the existing 'BB' due to weaker profitability at JLR, the company said. Similarly, the issuer credit rating and senior unsecured notes rating of JLR have been revised to 'BB-/Negative Watch' from 'BB' due to weaker profitability, S&P added.

The stock has fallen over 63% till date from its 52-week high of 443.55 reached on January 9, 2018. From the house of the reputed Tata Group, the stock is among the cheapest in the auto sector currently.

Even as the stock seems to be on a losing spree, we find out whether is it a good time to buy Tata Motors at current level.

Vinay Rajani, technical analyst at HDFC Securities said, "Tata Motors has been trading at its 52-week low. It has been forming lower tops and lower bottoms. Though it looks oversold on the charts, one should not try to catch a falling knife. Trend is bearish. Long term support is seen at 135-140 range. Immediate resistances are seen at 175 and 188.  

Rahul Agarwal, Director at Wealth Discovery/EZ Wealth said, "Buying Tata Motors at this point is equivalent to catching a falling dagger. Every time one thinks that the stock has fallen enough, it loses more on the back of negative news. For Tata Motors to do well, the JLR arm has to do extremely well, with uncertainty around two of its major markets: Europe and China and an expected slowdown in the US markets due to deteriorating market conditions and buzz around recessionary fears. We expect the stock to remain muted. In the near term, we expect limited upside in the stock. Traders can sell this stock at every rally in the short term as the stock has been unable to hold to its gains. However, at these levels, the stock looks attractive from a long-term perspective. Investors can expect a twenty percent upside in the counter if the holding period for the stock is greater than one year.

Mustafa Nadeem, CEO at Epic Research said, "The stock has seen one of the worst performance since 2008 despite a bullish rally across the automobile space and equity markets. Despite a stupendous rally, the stock has given in early years of this decade it has come down to erode 75% of its total value since inception in the last 4 years. There have been many factors that can be attributed to this and one of the most important factors is the performance of its JLR arm in the last few quarters.

The headwinds are due to a recent trade war and its impact on the top line of the company in countries like China. Despite a decent performance on a standalone basis, the company has posted due to its performance in CVs and PVs with a double-digit growth, the JLR arm has mounted some debt to this company while operating margin still remains a key concern. Global figures of JLR have shown some improvement in the last three months with growth in single digit, the worrying part is that it is still down year on year. The sales numbers have seen an uptick in the UK, Some part of Euro zone and North America. The JLR has mentioned the same with recent sales numbers showing some boost in North America due to latest Models like IPACE, XF, while it continues to face the challenges in China.  A recent cut by S&P on credit ratings of JLR from 'BB-' to 'BB' is another factor

All the above concerns add to a negative equation for the stock and its investors hence a much deeper pain to own the stock at present. The fall in EPS and operating margins is reflected in the stock. The standalone numbers do help to offset the red figures but no one wants to have uncertainty in the portfolio."