Tata Motors (NYSE: TTM), the fourth-largest truck manufacturer in the world, reported its fiscal 2016 Q4 earnings tripled on a y-o-y basis. The impressive performance was primarily aided by a rise in the sales of Jaguar. In India, the company experienced a huge demand for its trucks during the quarter ended March 2016. Following the results, the share price closed at $33.32 on Wednesday. The current share price presents an opportunity to go long because of the reasons discussed underneath.
For the fiscal 2016 fourth-quarter, the Mumbai-India based company reported an 18% increase in the revenue to rupees 812 billion ($12.03 billion), from rupees 685.28 billion ($10.38 billion) in the similar period last year.
The net profit of the Jaguar manufacturer was rupees 51.77 billion ($766 million), compared to rupees 17.17 billion ($254 million) in the corresponding period last year. The earnings estimate of analysts was a net profit of rupees 34.36 billion ($508.8 million) for the fourth quarter.
Segment-wise, the fourth-quarter revenue of Tata brand vehicles increased to rupees 146.42 billion ($2.17 billion), from 119.09 billion ($1.76 billion) in the fourth quarter of 2015.
More importantly, the fourth-quarter revenue of the Jaguar and Land Rover (JLR) brands rose to rupees 656.51 billion ($9.72 billion), from rupees 555.36 billion ($8.22 billion) in the prior year similar period.
In the fourth quarter ended March 2016, the sales of Jaguar XE compact saloon and Discovery Sport SUV increased 27% to 153,813 vehicles. Similarly, JLR registered a 19% increase in sales in China. It was down 10% last quarter. In Europe, the JLR saw a growth of 55% in the fourth quarter. It should be noted that JLR pushed back Nissan to become Britain’s largest automaker last year.
On a stand-alone basis, JLR reported $690 million as the net profit for the fourth quarter. This translates to a 56% increase in the profit on a y-o-y basis. In the US, the company’s new entry F-pace, a luxury crossover SUV, is sold out through July. The demand for the five-passenger vehicle is expected to further contribute to the top-line growth of the company in the current quarter. Thus, fundamentally, the American Depository share price of Tata Motors is expected to go up in the weeks ahead.
Technically, for the past 10 months, the share price was range-bound between 20 and 30. The strong earnings and the growth prospects now provide the necessary impetus for the share price to rise further. This is indicated by the rising RSI.
Thus, a one-touch call option trade would be ideal at this point in time. To improve the prospects of getting out of the trade with a profit, a binary trader should preferably pick up an expiry date in the last week of June. A strike price of $36 is suggested for the trade.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
