Tata Motors shares headed for free fall on JLR guidance

Tata Motors shares are likely to witness a selloff on Thursday tracking heavy losses in its American Depository Receipt overnight. Tata Motors ADR plunged 10 per cent after the company forecast a lower EBITDA margin for its Jaguar Land Rover (JLR) subsidiary in the October-December quarter compared with the previous two quarters.

Margins for the British luxury brands, owned by India's Tata Motors, are likely to be hit due to exchange rate fluctuations and a higher mix of Evoque sales.

JLR contributes a major chunk to Tata Motors' revenues and the stock has seen strong gains on optimism that JLR will continue delivering strong profits.

Global investment bank Morgan Stanley said expect stock reaction to be negative. Deutsche Bank maintained its "sell" call on Tata Motors with a target of Rs 275. Goldman Sachs placed its estimates and target price under review after the announcements. It said Tata Motors' share price could react negatively in near term.

However, Citigroup advised investors to buy into the dip.

Tata Motors shares closed 2 per cent lower at Rs 312 on Wednesday underperforming the broader BSE Auto benchmark that declined 0.83 per cent.

What Tata Motors said on JLR

JLR's capital expenditure will rise to 2.75 billion pounds in the fiscal year that begins in April, up from 2 billion pounds in the current year. The free cash flow for 2013-14 could be negative as a result.

JLR will report higher revenue in the quarter that ended in December than in the previous two quarters but similar EBITDA (earnings before interest, taxation, depreciation and amortisation), and will report a negative free cash flow in the period.

JLR reported EBITDA of 486 million pounds in the quarter to end-September, with an EBITDA margin of 14.8 percent.


(With inputs from Reuters)