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Tata Motors stock price has corrected nearly 45 percent in the last six months primarily over earnings concerns in arising in China where its subsidiary JLR has big exposure. According to Barclays, the house continues to maintain overweight on Tata Motors with a price target of Rs 560, the current valuations appear extremely bearish as a majority of the concerns appear to be priced in. At current market price, JLR is trading at 3.8X EV/EBITDA, making Tata Motors inexpensive versus its peers. "In FY16/17, we expect the revenue contribution of China to stand at 24 percent/17 percent, respectively.

Based on our estimates China accounts for 32 percent/25 percent of JLR’s (parent) EBITDA, respectively. If we were to assume that contribution from China falls to nil, we estimate the fair value comes to Rs 281 per share (assuming unchanged multiples and a nil value for Chery JV), all else being equal," Barclays wrote in recent note. Speaking to CNBC-TV18, Parag Thakkar of HDFC Securities too is positive on the Tata Motors stock saying it is extremely attractive at this point.

"While China is into problems and Chinese demand will be slow, I feel at current price everything is captured in." As further justification he said there are two positives which have not been captured — that a luxury product sales and CV recovery in domestic market. He said the luxury product sales have been good in US and Europe and poised for growth since this is one segment where lower raw material prices need not be passed on to the cutomers. Aluminum, a key raw material for manufactue of cars, has fallen significantly.

It is 65 percent of the Tata Motors raw material cost. That effect will come from Q3 because till then they will be hedged, Thakkar said. Speaking about the the commercial vehicle (CV) cycle recovery, he said it will reduce the company's standalone loss. "So, in my view, from risk reward perspective, Tata Motors is a great buy at this point of time." Independent Market Expert Jyotivardhan Jaipuria,  however, remains worried about the company because of its relations with China. He says despite efforts to improve the economy, Chinese government cannot enforce consumption.

Source:- Moneycontrol

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