Why Tata Motors shares jumped 90% in six months

Tata Motors, which owns iconic Jaguar Land Rover brands, has witnessed the share price surge 90 per cent over the past six months.

During the same period, the BSE Sensex rose 10 per cent and BSE Auto index rose 21 per cent.

Analysts at Goldman Sachs, SBI Caps and BRICS Securities have put a buy rating and say that the share price could go up despite this sharp rise.

Rising sales overseas: Tata Motors is selling more luxury cars overseas than any other Indian car maker. In March 2012, the company said it sold 45,000 luxuy cars under the Jaguar Land Rover brand, up 40 per cent from the year ago period.

JLR contribution rising: Selling more luxury cars means more revenue and profits. Cheap cars like Nano can give volume but the real money is made through selling cars to the rich. Jaguar Land Rover or JLR, the company's luxury car brands, account for two-third of the company's revenue and three-quarters of Tata Motors consolidated net profit.

Demand outlook strong: The outlook is bright going forward. Luxury car segment's immunity to a slowing economy would support JLR and lead Tata Motors's profits in 2012-13, says BRICS Securities, a securities firm.

Goldman Sachs, a global bank, believes that the top growing emerging markets now contribute a larger proportion of global luxury car sales.

The market share of emerging markets is 30 per cent in 2011-12 against an average 14 per cent between 2005-2008. which, in turn, improves the overall demand environment for JLR, the banks says.

Less outstanding debt: Jaguar Land Rover balance sheet is lighter on debt. The consolidated debt is expected to go down to $2.5bn (Rs 12,500 crore) for 2011-12. This is against $7 billion (Rs 35,000 crore) in 2008-09.

Improving efficiency at JLR: Plant utilization at Jaguar Land Rover stands at 97 per cent with a possibility of introducing a third shift with the help of recent hires at the company, says Goldman Sachs.

This is against plant utilization of 55 per cent with reduced weekday and working hours in 2008-09. The company is also expected to have 16,000 workers in 2008-09 against 15,000 four years ago.

New models: Tata Motors is looking to launch an all-new sports car Jaguar F-Type in 2013. The car will be manufactured in Birmingham. The number of products stands at 10 in 2011-12 against 6 in 2008-09.