Looking at the chart, TM (CMP: 398) has immediate support of around 392-379*-370 zone & only sustain below 370 it could fall to 355* area. Consecutive closing below 355, TM may further fall to 345-331 & 316-263 territory in the worst bear case scenario.
On the upside, TM has to sustain above 406-410 for an immediate target of 425-437 & sustain above that, 450-455 might be reached in short term. In the midterm, only sustaining above 455, TM may scale 477-500 & 513-531 zone and in the long term. consecutive closing above 531, it may target 575-612 & 630-700 territory in the bullish market scenario (FY-16-18).
Bottom Line: Technical Trading Levels (Positional)
| SL</>2 | FROM SLR | |||||||||
| TATAMOT | CMP | 398 | ||||||||
| T1 | T2 | T3 | T4 | T5 | T6 | T7 | SLR | |||
| Strong > | 379 | 392-400 | 406-410* | 417-425 | 430-437 | 450-455* | 477-488 | 500-531 | <370 | |
| Weak < | 370 | 355* | 345-340 | 331* | 316 | 302 | 284 | 263 | >379 | |
Tata Motors suffered significant corrections (around 30%) for the last few months for growing JLR issues amid China slowdown after its disappointed Q4 result. Basically,the JLR strategy of high cost low volume (premium segment ?) business model in China is not working and overall consumer sentiment in China is extremely poor due to recent massive stock market crash there. But the management is taking corrective steps in accordance to the reality (excess supply of premium cars) of the situation there in China and hopefully, we may see better performance in the coming quarters. China accounted for nearly 25% of its global sales & is an important part of TM, but other global markets, including EU/UK & US are doing well because of correct relevant marketing strategy.
Also "Evoque" (A well known JLR brand) strategy in China failed to meet the imported standard of the same from UK and eventually sales plummeted and there is even a Chinese made "copy-cat" version (LWX7) of it, selling at much lower level at around 14k GBP against 40k GBP !!
TM has also considerable balance sheet debt of around Rs.69000 Cr as on March'15 (consolidated debt/equity ratio around 1.23 with stand alone debt of around Rs.20000 Cr) and is planning to reduce that by Rs.4000 Cr/year by various other fund raising plans such as rights issue, NCD etc.
Going by the time & price action for the TM scrip, the above China issue may be already discounted to a great extent. The Chinese authority is making an all out effort openly to stabilize the crashing stock market there in the interest of their own people (rural China is nearly washed out) & overall economy and is also ready with various stimulus bazooka (even Fed is concerned about China). Thus we could see a bounce back of sentiment in the world's 2-nd largest economy & global power house in the days ahead.
Apart form the China factor, TM is making an all out effort to be "Future Ready" and working on a string of new products & technology in the PV & CV space to address customers in different segments both in domestic & international markets. It is encouraged by decent pull in demands of its newly launched Zest, Bolt & Nano in new avatar.
The JLR will also launch Jaguar XE & Discovery Sport worldwide this year. To meet its expansion plan, TM is planning to raise Rs.4400 Cr by NCD this year and the overall capex for FY-16 will be around Rs.38800 Cr. These are among various turnaround plans for the management/CEO (Cyprus Mistry) to make the company ready for future as it sees sequentially higher demands for automobiles by the next few years amid "Shinning India" theme.
If the 7-th pay commissions will increase the automobile demands by multi fold in India, not only Maruti, but all the other listed automobile companies in PV segment including TM and also M&M will benefit (apart from unlisted Hyundai/Honda etc). But mass appeals for PV segment in TM need to be enhanced to a great extent in order to compete with Maruti & worlds of Honda/Hyundai in this segment. With the change in the executive team & attitude and with the help of new products & technology along with revamped back up service with affordable spare parts, the company (TM) is turning around steadily.
TM is already quite strong in CV (both HCV/MCV & LCV) markets and with the growing mass appeals of the worlds of "Ola Cabs" in metro cities, we may see exponentially higher demands in this segment along with overall improvement in economic activity in our country (heavy/light trucks & buses are in demand). Its also targeting big from Indian defence sector, thanks to our Govt's "Make In India" initiative.
Basically, TM needs to rebrand it as an affordable, yet high tech quality automobile company in India (value for money) in PV segment (petrol) from its age old concept of noisy diesel PV as the old concept of petrol/diesel price difference is not so much today and maintenance cost for diesel vehicle is much more than a petrol vehicle in this segment. With a strong & well respected global brand, such as "TATA", it could easily do that by various marketing tricks with the help of its deep pocket.
Considering all the bad news for TM, the scrip is trading at a fair valuation and risk/reward ratio is also on the lower side. It may be proved as "hidden gems" once again in the days ahead.
As par quick BG metrics, current median valuation of Tata Motors may be around 450 & its projected fair valuation might be around 525-575-675 (FY:16-18) under the current market conditions.
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | LONG TERM | SHORT TERM | MEDIAN VALUE | 200-DEMA | 10-DEMA |
| TATAMOTORS | 41.19 | 203.82 | 10.5 | 459.63 | 418.30 | 438.96 | 488.46 | 404.57 |
| TATAMOTORS | 56.58 | 295.5 | 10.5 | 538.69 | 490.26 | 514.47 | 488.46 | 404.57 |
| TATAMOTORS | 69.78 | 429.5 | 10.5 | 598.24 | 544.45 | 571.34 | 488.46 | 404.57 |
| TATAMOTORS | 95.95 | 625.75 | 10.5 | 701.51 | 638.43 | 669.97 | 488.46 | 404.57 |
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