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#The share of Tata Motors Ltd (Rs.323.85) corrected, yesterday. Hold the scrip with a SL of Rs.133. With the rise in petrol prices and a threat of inflation due to an expansionary economy, the auto sector can see its upward move getting jolted.
#Sell the shares of BHEL (Rs.43) near the CMP for the short term targets of Rs.39/37. SL: Rs..45.
BHEL reported a 17% on-year decline in consolidated profit at Rs. 162.67 crore for the quarter ended December 31, 2020. According to a brokerage house BHEL's (Bharat Heavy Electricals Ltd) earnings are likely to suffer by 9-13% over FY20-22E, on account of poor execution, issue with receivables and weak ordering environment.
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If you remember, few days back I gave a SELL on Tata Motors based on two primary reasons which are negative for the auto sector, as a whole:
#The rise in the price of crude oil in the international market and rise in price of petroleum products in India.
#Opening of railways can reduce the demand for two/four wheelers.
#Rise in inflation due to an growth oriented budget can spike interest rates in the short to medium term.
There are other factors too, which can have negative effects on the share price:
Eg.The face value of the share is Rs.2. So at the CMP of Rs.333.15, it is actually trading at Rs.1665. 75 (Rs.10, FV), which I feel is not too cheap considering its EPS to be (-) Rs.26. 84 and ROE of (-) Rs.59.04.
Moreover, on October 16, 2020, the Moody’s Investor Services said that, an uncertain pace of recovery in the global auto market will continue to take a toll on the fundamentals of Tata Motors and its wholly-owned subsidiary Jaguar Land Rover (JLR) Automotive for the next 12-18 months.
Similarly in last November, the rating agency S&P Global Ratings also downgraded the outlook for Tata Motors to negative from stable on account of a slower than expected recovery in company’s operational performance.
In such a scenario I don't see too much optimism in the counter of Tata Motors even though the expansionary budget might have some positives on the fundamentals of the company which can take the share price to Rs.370/420 in the short to medium term.