MUMBAI - Shares in India's largest vehicle maker, Tata Motors Ltd, have more than quadrupled this year riding a pick-up in sales on the back of a recovering economy.

The rally, which has made the stock the top performer in a benchmark BSE index up more than three-quarters in 2009, was also powered by turnaround in the company's UK-based marquee brands Jaguar Land Rover (JLR).

Thomson Reuters data showed that of 20 brokerages covering the stock, 12 have a buy or outperform rating, five have hold and 13 have a sell or underperform recommendation.


Shares in Tata Motors, which has a market value of $8 billion, trades at roughly 22 times its 2010/11 earnings, data from Thomson Reuters showed.

This makes the stock expensive, compared with its peers Mahindra & Mahindra and Maruti Suzuki that are quoted at 15.5-17.5 times FY 11 earnings.

The high valuations are justified. The company is on a recovery path after a critical period, said K.K. Mital, who manages around $10 million as head of portfolio management services at Globe Capital.

He said he would buy the stock at this point for his clients.

Tata Motors, whose mainstay is trucks, posted an 81 percent annual jump in sales of commercial vehicles in November, indicating fleet owners were on a spending spree as the economy picks up momentum.

Asia's third-largest economy expanded 7.9 percent in the September quarter, the fastest pace in 18 months, as government stimulus measures began bearing fruit.

Tata Motors, which also produces cars from the premium JLR to Nano, the world's cheapest, got a boost after the Britain-based JLR unit returned to operating profit in the September quarter.

Supriya Khedkar, an analyst at ICICI Securities, said JLR's better performance and the company paying off the high-cost debt it had taken to acquire the unit were positives for the stock.

The domestic market is also reviving, especially the commercial vehicles segment and that is very important for the company going forward, she said, adding the brokerage had a buy on the stock.

Tata Motors closed at 723.60 rupees on Tuesday, up from 158 rupees at the start of the year.


Several analysts have downgraded the stock after its stellar run, which has seen it rise by a quarter in the past month alone.

There is a sense of risk in this stock. It is uncertain whether it will be able to sustain its rate of profit growth, said Rakesh Rawal, head of private wealth management at Anand Rathi Financial Services.

He said it was time to take profits and he advised clients to avoid the stock for now.

Tata Motors had said in October rising raw material costs would put its margins under pressure.

I think we are playing too much on the future positives of JLR, which have to be justified by the numbers, Ajay Parmar, head of institutional equities at Emkay Global, said.

The price has run up too fast on that basis. Let us see the numbers first, said Parmar.

Certainly on the domestic side the commercial vehicles business is doing very well but with JLR their whole business composition has changed. It is too expensive at these levels.

The put-to-call ratio on Tata Motor's U.S. ADRs has fallen sharply over the past couple of months, from a peak above 0.75 in October to below 0.50 currently. A low put-to-call ratio indicates market sentiment on a stock is bullish and is often used as a contrarian signal to sell. (Editing by Ranjit Gangadharan and Lincoln Feast)