Tata Motors Stock Dips Below ₹1000: What UBS’s ‘Sell’ Rating Means for Investors

Shares of Tata Motors, a leading player in the global automobile sector, experienced a significant decline of nearly 4.4% in early trading today, bringing the stock price down to ₹989.55. This marks the eighth consecutive day of losses for Tata Motors, pushing its share price below the ₹1000 threshold for the first time since late July.

The sharp drop in the stock price follows a recent report from UBS Securities, which has maintained a ‘Sell’ rating on Tata Motors with a target price set at ₹825 per share. This target implies a potential downside of approximately 20.3% from Tuesday’s closing price. UBS’s cautious stance is driven by concerns over potential further declines due to margin pressures in the company’s luxury arm, Jaguar Land Rover (JLR), as well as challenges within the domestic passenger vehicle segment.

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UBS’s report highlights that JLR’s focus on higher-margin models during the ongoing semiconductor shortage has significantly boosted its average selling prices and gross margins. From £49,000 and 26.7% in FY 2020, JLR’s average selling price and gross margins have risen to £72,000 and 31% in FY 2024, respectively. While this shift has provided a buffer against weaker performance in markets like China, UBS notes that demand for these premium models is starting to wane.

The brokerage points out that current orders for JLR vehicles have fallen below pre-COVID levels, suggesting a potential slowdown in the recent success of the brand. This decline in demand could lead to increased discounts on models such as the Range Rover in the near future.

According to Tata Motors’ Q1FY25 earnings report, JLR’s order book has decreased to 104,000 units, down from 133,000 vehicles in Q4FY24. Despite achieving record revenue of £7.3 billion in the June quarter, up 5% year-on-year, the company’s management remains cautious about the rest of FY25, reflecting concerns about future performance.

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The negative sentiment surrounding Tata Motors has been further compounded by the stock’s performance following the release of its Q1FY25 numbers in early August. Although the figures were solid, the stock has been on a downward trajectory ever since, ending August with a 4% decline and continuing to fall in September, down 12% so far. From a peak of ₹1,176 per share, the stock is now down 17%.

Looking ahead, Tata Motors anticipates production constraints for JLR in Q2 and Q3 due to an annual summer plant shutdown and supply chain disruptions caused by floods affecting a major aluminum supplier. Domestically, Tata Motors expects increased demand during the festive season. However, total passenger vehicle sales in August were around 44,500 units, reflecting a 3% year-over-year decrease and a 1% month-over-month drop.

The current market conditions are putting pressure on passenger vehicle manufacturers, leading to significant inventory buildup. Dealers are struggling to clear existing stock, prompting automakers to offer discounts on popular models. Tata Motors has recently increased festive discounts to as much as ₹2.5 lakh on various petrol, diesel, and CNG cars and SUVs, with additional consumer benefits of up to ₹45,000 on popular models. While these discounts aim to boost sales, there are concerns that they may negatively impact profit margins.