Credit Suisse has downgraded Tata Motors following a disappointing earnings per share outlook after the Indian truck and car-maker reported disappointing first-quarter results and lower sales expectations for Jaguar Land Rover, which accounts for the majority of sales and profits. In results recently released, net profit rose 12.3% to 22.45 billion rupees for the quarter ended in June, compared to the same period a year ago. That was below estimates for profit of 27.61 billion rupees, according to Reuters. The JLR subsidiary accounted for 91% of profits in the June quarter which, in India, was a cause for disappointment because it represented a 32% decline in heavy truck sales and a 10% decline in car sales.
Credit Suisse analysts cut their rating on the stock to Underperform from Neutral. They noted 'that while Jaguar Land Rover margins held up during the quarter, margins are likely to decline due to pricing pressure from higher-end auto models in China, and the need to support sales in the US because of weakness in Europe.'
As a result Credit Suisse doesn’t see 'any positive trigger for the company before the launch of the new Range Rover in December.'
It is suggested that there will be limited free cash flow generation at JLR, as result of increased capital expenditure and R&D spending. This is a trend which is expected to continue as tightening emission regulations force companies to increase R&D spend.