Tata Motors Shares Fall Over 10% In Two Days. Should You Buy?

Tata Motors shares declined further on Tuesday, extending losses to the second straight day. Tata Motors shares closed 4.4 per cent lower at Rs 276.55 apiece on the Bombay Stock Exchange (BSE). Tata Motors shares had opened at Rs 289.70 and hit an intraday low of Rs 275.10, before settling at Rs 276.55 for the day. That marked a decline of more than 10 cent in two days. Analysts say that concerns relating to the automaker's higher-than-expected capex for its subsidiary Jaguar Land Rover hurt the investor sentiment. The sock was the biggest laggard on benchmark equity indices Sensex and Nifty.

In an investor meeting last week, Tata Motors-owned Jaguar Land Rover revealed plans of investment worth 13.5 billion pounds (around Rs 1.2 lakh crore) in the next three years. Investment will be 4.5 billion pounds per annum from FY19 to FY21 and subsequently targeted at 12-13 per cent of turnover, JLR said in the investor presentation.

The investments will be made on new models, technology, capacity with significant amount of it on electrification, and on a new platform, modular longitudinal architecture (MLA). The company also said it will launch four new models by FY24.

Brokerage Edelweiss, in a research note, termed the capital expenditure higher than expectations. "Management commentary during JLR's investor day reaffirms our core concern on FCF (free cash flow) due to the higher-than-expected capex and lower volumes. Moreover, we perceive normalising margin in China as an incremental negative... We appreciate JLR's efforts and capabilities on various technological aspects, enabling it to now be at the forefront of disruption in the global automobile industry," it said.

Jaguar Land Rover has "effectively bridged the technological gap with peers over the past eight years, enabling it to be at the fore front of electrification and adopt flexible manufacturing", said Edelweiss, which maintains a 'hold' call on Tata Motors shares.

A K Prabhakar, head of research at IDBI Capital, said Jaguar Land Rover's big capex plans led investors into a state of panic, leading to the recent fall in Tata Motors shares. He said investors were worried about the company's cash flow and top line due to the capex plans.

Mr Prabhakar, however, believes the stock can be a good buying opportunity below the price of Rs 250 (5 per cent from current levels).

Tata Motors shares traded with heavy volumes on Tuesday. On the BSE, 20 lakh Tata Motors shares changed hands, compared with a two-week average of nearly 6 lakh. The shares had ended at Rs 289.40 on Monday, down more than 6 per cent from Friday's closing price of Rs 308.

"Technically, Tata Motors is still very weak...no confirmation of bottoming out immediately unless it clears Rs 300-310 range decisively again," research analyst Simi Bhaumik said. "Short term traders can still use any rally to create short positions for it...investors can still wait for a confirmation and then only consider buying it for long term."

Tata Motors shares are trading below all important moving averages, which indicates that there may be further bearishness in the short-term, said Rajesh Palviya, head-technical and derivative research at Axis Securities. "The stock is trading near its important support level of Rs 270-265. If the stock holds this support level then some pullback action can be seen from these levels. On the breakdown of Rs 265, it will resume its downtrend and it can slide further towards Rs 255-250 level in short term," he said.

"On the higher side, Rs 305-315 are likely to act as stiff resistance for any minor pullback action in the near term."

(With agency inputs)