he wait for the Nano is finally over with Tata Motors announcing that the much awaited people’s car will make its commercial debut on Monday. However, what investors in Tata Motors are anxious to know is if the launch will lift the stock since it has fallen over 75% from the 52-week high of Rs 664. Added to this, Tata Motors still has to refinance the USD 2 billion debt that it owes Jaguar Land Rover for the takeover and the Nano sales may not be enough to pay off this huge debt.

Most analysts CNBC-TV18 spoke to don’t think the Nano will do wonders to the Tata Motors stock in terms of revenue contribution and recommend exiting the stock once it hits Rs 185-200.

Furthermore, reports of production constraints and delivery issues had marred the stock’s movement last week resulting in a 7% fall in three trading sessions. On March 20, the stock lost 6.5% on heavy volumes and closed at Rs 160. Why are analysts sceptical?

– Tata Motors still has to refinance the USD 2 billion debt that it owes Jaguar Land Rover. The company got no meaningful help from the UK government and the Nano sales may not be enough to pay off this huge debt. So in terms of revenue addition it is quite insignificant. The best option Tata Motors has is to hive off JLR to Tata Sons or Tata Capital.

– They feel the company is unlikely to make money and believe it will see margins of less than 5% on initial Nano orders.

– The demand and supply issue is a huge hindrance to the Nano. Existing Nano plants in Pune and Pantnagar are likely to produce only 40,000-50,000 cars this year. The company would be able to roll out 2,50,000 cars initially once its mother plant in Sanand is ready.

– Dealers don’t seem to be too happy with Nano’s thin margins.

– The Nano would only add Rs 520 crore to the company’s topline, not so hot for a company with Rs 24000 crore in topline. It will also not have a huge impact on FY10 earnings.

Hold or exit Tata Motors?

SP Tulsian of sptulsian.com recommends exiting the stock once it surges to Rs 185-190, which he feels is likely in the next one week. He expects Tata Motors margin to be under pressure for a while. “Volumes are at least 8-10 months away. I am not very positive on the stock unless and until the Sanand plant starts.” He believes the full impact of the Nano launch would only begin to filter into the company by FY11.

Vijay Bhambwani of bsplindia.com expects a lot of traders to exit at Rs 200. “Not only is this a psychological round figure, but a lot of these losses are more acceptable than what they were at Rs 125-130 levels.” He recommends waiting for a breakout above Rs 195-200 on a consistent closing basis and only then should one take a fresh call.

Bhambwani sees a double-top resistance for Tata Motors at Rs 195 in the short- to medium-term. “This needs to be overcome forcibly, failing which around the Rs 190-195 there could be extreme amounts of profit taking.”

Amish Shah, Auto Analyst, Antique Stock Broking, believes Nano’s launch would help Tata Motors augment passenger vehicle volumes. He is, however, negative on Tata Motors stock as he is concerned about the company’s commercial vehicle volumes. “As of now, we are seeing de-growth in volumes.”

Shah estimates Tata Motors’ FY09 and FY10 EPS at Rs 9 and Rs 11-12 respectively. “Although the numbers have improved on a quarter-on-quarter basis as far as the current quarter is concerned, but on a year-on-year basis unless you see stable growth coming in for CV volumes, things for Tata Motors continue to look weak.”

However, Portfolio Manager, PN Vijay feels Nano would be a very big positive for Tata Motors as it would help the company garner cash when bookings come in and that will boost the company’s cash flow.

source: Moneycontrol

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