Tata Motors share falls for second straight session on chip shortage worries, here’s what brokerages say

Tata Motors share fell for the second straight session after the Indian auto major flagged chip supply shortage for its UK-based subsidiary Jaguar Land Rover (JLR). Share of Tata Motors touched an intraday low of Rs 306.3 falling 3.36% against previous close of Rs 316.95 on BSE.

The stock has lost 10.37% in the last 2 days. The share trades higher than 200 day moving averages but lower than 5 day, 20 day, 50 day and 100 day moving averages.

The stock has risen 185% in one year and gained 69.3% since the beginning of this year.

 Market cap of the auto firm fell to Rs 1.03 lakh crore on BSE.

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Total 36.80 lakh shares changed hands amounting to turnover of Rs 114.63 crore on BSE.

The stock hit 52 week high of Rs 360.65 against previous close of Rs 316.95 and 52 week low of Rs 100.65 on July 16, 2020.

On July 6, the stock hit lower circuit of 10%  falling to Rs 311.45 against previous close of Rs 346.05 on BSE.

The Indian automaker said shortage of semiconductors is likely to see Jaguar Land Rover report 50 percent lower wholesale volumes by the end of the September 2021 quarter coupled with a negative EBIT margin.

The broader underlying structural capacity issues will only be resolved as supplier investment in new capacities comes online over the next 12-18 months, so we expect some level of shortages will continue through to the end of the year and beyond, the company added.

Brokerages too have expressed their concerns over the shortage of chips for the UK car firm.

Here’s what they said.

ICICI Direct has revised its target price downward for Tata Motors.

ICICI Direct said, “We now expect Tata Motors FY21P-23E sales CAGR of 18.4% with FY23E EPS of Rs 37.6. The chip  shortage-led  production  warning  comes  as  a negative surprise and is likely to impact CFO generation in FY22E. Accordingly, we maintain BUY with a revised SOTP based target price of Rs 375 (12x, 3.3x FY23E EV/EBITDA to India, JLR businesses respectively; earlier target price Rs 400).”

Motilal Oswal has maintained a buy call on the stock.

“Based on recent inputs from suppliers, the chip supply shortages in 2Q are expected to be greater than that in 1QFY22, potentially resulting in 50% lower wholesale volumes than planned. It expects the situation to start to improve in 2HFY22. Hence, it expects a negative FCF of 1 billion pound, with a negative EBIT margin in 2QFY22.  While there would be no near-term catalysts from the JLR business, the India business (50% of SoTP) would see a continued recovery. The stock trades at 9.2x FY23E consolidated EPS and 1.7x P/B. We maintain our Buy rating with a target price of Rs 400 per share share(Mar’23ESoTP-based),” the brokerage said.