Stock Review: Tata Motors

Over the last twelve months, most auto stocks have outperformed key benchmarks, driven by strong volumes and margins. However, the sector is faced with multiple headwinds in the short run, even as analysts stay bullish in the long term. As the cost of ownership rises for consumers due to price increases, higher interest and fuel costs (up 15-22 per cent in the last one year), analysts believe four-wheeler players like Tata Motors are better equipped to ride the storm.

The February volumes indicate players that can survive competitive pressure will fare much better. With Nano driving February sales, Tata Motors seems better placed to survive the short-term headwinds, even though both commercial vehicles (CVs) and passenger car sales are under pressure.

February was a positive month for most auto makers as the sector saw robust sales in anticipation of an increase in excise. Tata Motors reported 11.7 per cent year-onyear growth in total sales to 77,543 units. The star in the Tata portfolio in February has been Nano. The PV segment posted 16.3 per cent y-o-y growth to 27,510 units in February 2011, recording its highest sales for the current financial year.

PV volumes were driven by the 101 per cent y-oyincrease in Nano volumes to 8,262 units. Excluding Nano, domestic car volumes grew one per cent y-o-y. Nano volumes rose to 8,262 units, compared to 6,703 units in January.

The CVs segment reported amodest 8.6 per cent y-o-y growth to 45,374, aided by the 3.8 per cent and 12.4 per cent growth in the M&HCV and LCV segments, respectively.

Motilal Oswal's FY11 estimates 25.2 per cent volume growth for passenger cars (including exports), implying a residual run-rate of 30,630 units. The utility segment continues to show a recovery, with growth of 15 per cent y-o-y to 4,659 units. The recently launched Aria is expected to boost sales further. The company has increased prices of CVs by `1,500-30,000 and for PVs (ex-Nano) by `3,00015,000 since January 2011, while this may help dilute the cost push, it may hamper volumes in the coming months.

Tata Motors seems better placed to survive the short-term headwinds, even as car sales are under pressure