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Shares of Tata Motors dropped 5.4 per cent to a day’s low of Rs 980.10 on the BSE after the company announced price cuts of up to Rs 2.05 lakh on its EVs and popular cars, signaling weak growth prospects. This move was followed by global brokerage firm UBS issuing a ‘sell’ rating with a target price of Rs 825.
The brokerage said Range Rover, Defender and Range Rover Sport are the premium models of Jaguar Land Rover (JLR) that have been lifting the Tata Motors UK arm’s average selling price (ASP) and gross margin. But the extended successful run of these models has started to moderate, with the order book falling below the pre-Covid levels. The foreign brokerage expects discounts on Range Rover could also rise, citing previous such instances with Defender and Range Rover Sport.
“With JLR’s order backlog already below pre-COVID and incremental bookings lagging supply, we would not be surprised if the incentives for Range Rover—JLR’s apex model— start rising soon from near-zero levels. Rising discounts, moderating growth and a lack of any new ICE/hybrid launch could result in significantly weaker financials for FY26, even if consensus extrapolates the last two years’ results,” UBS said.
The moderation in JLR’s volume comes at a time when demand in India for commercial vehicles (CVs) is wobbling while passenger vehicles (PVs) have started underperforming their regional peers in growth and margin terms.
On Wednesday, the stock fell 4.86 per cent to hit a low of Rs 985.15 on BSE.
UBS noted that Defender was the first model whose incentives began to rise in July 2023. Discounts for Range Rover Sport, which changed platforms in 2022, rose suddenly in July 2024 from near-zero levels. It also happens to be JLR’s largest selling model in the US. Given the time since its launch in 2022 and the Defender precedent, UBS expects discounts to keep rising directionally even as near-term deliveries could be affected by the disruption from flooding at an aluminum supplier.
JLR has used the semiconductor shortage to ration production in favour of these models, which have further lowered its dependence on lower priced and margin models.
“ASP/GM expanded from £49,000/26.7 per cent in FY20 to £72,000/31 per cent in FY24 as incentives fell to the lowest levels among peers. The success of these models also mitigated the impact of a relatively weaker recovery in China, its highest-margin market. However, the extended successful run of these models has started to moderate and the order book is now below pre-COVID levels,” UBS said.
The foreign brokerage values JLR at Rs 340, on 7 times one-year forward PE. “We value the Indian CV/PV segments at Rs 280/Rs 170 on 10 times/14 times one-year forward EV/Ebitda. We value investments in subsidiaries/associates at Rs 35. We expect further downside risk from margin slippage at JLR and within Indian PVs (especially the EV arm) on any significant shortfall in performance due to high valuations,” UBS said.
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