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JPMorgan has downgraded Tata Motors to neutral from their previous rating of overweight, citing a delay in deleveraging timelines at Jaguar Land Rover (JLR).

The brokerage has also slashed its price target on the stock to Rs 455 from Rs 525 earlier. The cut in price target brings down JPMorgan's potential upside on Tata Motors to 10 percent from 27 percent earlier.

Tata Motors' Jaguar Land Rover's retail sales increased 12 percent compared to the June quarter to 88,121 units. Wholesales grew 4 percent to 75,307 units. The company also mentioned that the order book remains at record levels, particularly for the new Range Rover, Range Rover Sport and Defender, indicating strong customer demand. It also expects sales to improve further in the second half of the year.

JLR's retail sales during the quarter were aided by China, where sales grew 38 percent quarter-on-quarter, despite multiple Covid-19 outbreaks, North America (up 27 percent), and the Overseas market (up 14 percent). However, sales in the UK (down 7 percent) and Europe (down 10 percent), were a laggard, indicating inflation pressures on the local economy.

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Wholesale volumes were lower than anticipated due to shortage of specialised chips from one of the supplier. JPMorgan expected wholesale volumes of 90,000 units in the September quarter.

JLR's total order book now stands at 2.05 lakh units with the New Range Rover, New Range Rover Sport, and Defender making up for 1.45 lakh of those orders.

JPMorgan is wary that a delay in generation of free cash flow increases the risk to JLR's debt reduction targets. The carmaker is looking to achieve zero net debt status by financial year 2024.

The brokerage also said that the net additions to the order book in the September quarter are slower than the June period. For Tata Motors, JPMorgan expects the India business to continue to lend support to the stock. However, it has slashed the company's Earnings Per Share estimates by 12-25 percent over the next two financial years.

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"We would need more clarity on the pace of production recovery at JLR to turn constructive," the firm wrote in its note.

Shares of Tata Motors are down 4 percent in opening trade at Rs 396.60. The stock is 8 percent away from its 52-week low of Rs 366.

First Published:Oct 10, 2022 9:33 AM IST