It's not the best time to be buying shares of auto companies after the recent scandal that rocked Volkswagen, one of Europe's largest car manufacturers. But, wait a minute - should you not be buying shares during bad times, as you get the same at cheap valuations?

Tata Motors: Quotes, News

BSE 388.407.85 (-2.02%)

NSE 388.107.95 (-2.05%)

1) Volkswagen scandal hits Tata Motors stock

This week Tata Motors slumped to a new 52-week low of Rs 301 on the National Stock Exchange, thanks to sentimental impact on global auto stocks after reports that VW had cheated on emission tests. Tata Motors has nothing to do with it, except the fact that it is a renowned global auto major. So, in a way you are getting Tata Motors a lot cheaper after the scandal.

2) VW's loss may be Tata Motors' gain

If there are serious issues with brand damage at Volkswagen, which dent sales, other global manufacturers are likely to benefit and Tata Motors with brands like Jaguar Land Rover is one of them. So, this could have a direct impact on key markets like US and Europe.

Having said that a substantial portion of JLR sales still comes from China.

3) Cheap valuations

Two leading brokerages in the country have placed the EPS of Tata Motors at around the 52-Rs 54 for FY 2016-17. This is just about 6 times p/e for a world-class automobile manufacturer. If Maruti can trade over 30 times, p/e, one cannot underatand why Tata Motirs's shares remain so highly undervalued.

4) Stock price is at half the price prevailing in Jan 2015

Shares of Tata Motors was placed at Rs 606 in late Jan, but, has now slumped to Rs 301. That is half the price or 50 per cent erosion in value from the yearly highs.

5) China is not going to crash land anytime soon

More than 20 per cent of the JLR sales comes from China. The one reason why the Tata motors stock has fallen is because of growth in China slowing down. However, markets have over reacted too much to the China slowdown. The way the Tata Motors stock has fallen, it suggests that Chinese economy is in the doldrums, but, as a matter of fact the country is still growing at around 7 per cent.

6) A spate of launches to help growth

Jaguar Land Rover unveiled several new exciting models at the Frankfurt International Automobil-Ausstellung. On display were 19 vehicles from its portfolio, including the all-new Jaguar F-PACE and the Land Rover Discovery Sport Dynamic. The spate of new launches is expected to boost sales.

All of the above reasons are good enough to invest in the Tata Motors stock.

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