Tata Motors: The Most Powerful Product Cycle On The Planet?

• Tata Motors Limited (ADR) TTM shares are down 30 percent year-to-date, declining steadily after hitting a high of $51.47 on Feb 3.
• Bernstein’s Robin Zhu upgraded the rating on the company from Market Perform to Outperform, while reducing the price target from INR490 to INR450.
• Jaguar Land Rover’s product line expansion could be powerful enough to more than offset declining profitability in China, Zhu said.

Analyst Robin Zhu mentioned that Chinese profitability is likely to continue to decline. The product line expansion by Tata Motors’ wholly-owned subsidiary, Jaguar Land Rover [JLR], has been massive, and could prove to be solid enough to more than offset contracting margins in China. “This is still an earnings growth story,” Zhu added.

China continued to be JLR's biggest profit driver. In this market, Range Rover and RR Sport volumes had remained high, with sales deterioration occurring on smaller, lower margin products.

“Inventories are back under control and dealers are happier (we provide results from our dealer interviews),” Zhu mentioned, while adding that Range Rover volumes and profits are likely to contract in China, but would not collapse, since the Asian nation’s rich population continue to prefer SUVs to luxury sedans.

While margins in China will contract, JLR is poised for “the strongest growth of any OEM in the world in the next few years,” the analyst wrote. The expansion of its product line has been dramatic and most of the models appear to be “world-class and heading for success.”

In the report Bernstein noted, “We expect the XE and XF to be successes everywhere except China, and expect F-PACE, new Discovery and L560 Range Rover to succeed globally.”