Tata Motors up on better outlook

Mon, 30 Nov 12:30 pm

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The benchmark Indian indices continued their upward march during the previous two hours of trade. Currently, stocks across sectors are finding favour. While stocks from the metal, realty and auto spaces are amongst the top gainers, those from the FMCG and pharmaceuticals space are lagging behind. The overall advance to decline ratio is currently poised at 3.4 to 1 on the BSE.

The BSE-Sensex is trading firm, up by around 300 points or 1.8%, while the NSE-Nifty is up by around 100 points or 2%. The BSE-Midcap and BSE-Smallcap are also trading firm, up by around 2% each. The rupee is trading at 46.47 to the dollar.

Engineering stocks are currently trading firm led by AIA Engineering, Suzlon, Voltas and Cummins. Engineering and construction major, L&T has announced that it is forming a joint venture (JV) company with Nuclear Power Corporation of India (NPCIL). This JV company is being set up to make forgings for nuclear power plants. These forgings would include special steel and ultra heavy forgings. The JV company plans to set up a new, fully integrated facility at Hazira, Surat. As per a leading business daily, this venture is likely to be valued at about Rs 15 to 20 bn.

Considering that this would be L&T's first JV for nuclear forgings, it would be a significant step for it. This throws up a huge opportunity for the company as it will be able to supply finished forgings for nuclear reactors, pressurizers and steam generators, in addition to heavy forgings for critical equipment for the hydrocarbon sector as well as for thermal power plants. Also considering the fact that there are very few countries in the world having capabilities to produce nuclear grade heavy forgings, L&T is likely to benefit going forward. It will help the company further its goal of capitalising on the emerging potential of the nuclear power sector in India.

Auto stocks are currently trading firm led by Tata Motors, Escorts, Ashok Leyland and M&M. The stock of Tata Motors is currently amongst the top gainers on the BSE-Sensex on the back of announcing better than expected consolidated quarterly numbers. While the company's international brands, Jaguar Land Rover (JLR) witnessed a pickup in volumes on a sequential basis, it also witnessed a stronger operating performance on the back of lower input costs. JLR reported an EBIT (earnings before interest, depreciation, amortisation and tax) of Rs 3.1 bn during the second quarter as compared to an Rs 2.6 bn loss during the preceding quarter. On a year on year basis, the company's consolidated operating profit margin was higher by 1% to 7.1%. This was despite an 8% YoY fall in consolidated revenues.

Tata Motor's management has mentioned that there has been a pickup in demand for JLR in countries such as UK, China and Russia. This has been on the back of improved availability of consumer credit. In addition, the subsidiaries have been trying to cut down costs by certain methods such as lower marketing expenses and layoffs. We believe these methods along with the overall improving demand scenario would help the company going forward. However, the rising raw material costs remain an area of concern for Tata Motors.