We are lowering our profit forecasts for Tata Motors following a cut in our midcycle margin assumptions, as we expect the firm to sell a higher percentage of lower-priced compact versions of its brand name Land Rover and Jaguar vehicles.
While higher volume sales growth is likely, we don't expect it to fully make up the gap to our prior earnings estimates. In addition, we reduce our fiscal 2016 earnings forecast by 24% to Rs 32 per share, but maintain our fiscal 2017 estimates following the firm's second-quarter results release. The midcycle forecast revisions lead to a decline in our fair value estimate for Tata Motors to Rs 550 per share from Rs 650.
We keep our narrow moat rating as we see the firm's stable of brands sustaining its market position, but note that the trend remains negative as pressure on margins continue. Nonetheless, we continue to find value in Tata Motors at the current share price level, with the stock trading on 7.5 times fiscal 2017 P/E, below its historical average of 9 times and with promising sales of its new compact models.
Tata Motors' second-quarter results disappointed the market, with the bottomline hit by a one-time writeoff of Rs 25 billion related to lost inventory as a result of the Tianjin port explosion. As well, foreign exchange loss of Rs 11 billion largely related to its euro-denominated payables that led to a consolidated net loss of Rs 4.3 billion. To a large extent, the lower operating margins in the second quarter had been anticipated as the firm faced higher marketing expenses and weak China sales. Outside of the one-time charge, core operating performance is tracking our full-year estimate outside of a 2% higher variable marketing expense.
The charges in this quarter lead us to cut our earnings estimate for 2016 by 24% to Ra 32 per share, but we leave our 2017 earnings forecast unchanged as we expect improving operating efficiency and leverage from this year's new launches and marketing campaigns.
We think Tata Motors may be able to write-back the Tianjin losses, but have not factored this in as the timing of the insurance payout is uncertain.
We reduce our five-year average earnings growth estimate to 10.5% from 12.1%. This follows a decrease in our midcycle margin assumptions to 9% from 11% that we think will be partly offset by a rise in group five-year average volume growth to 9.5% from 8.5% earlier. We remain enthused with Jaguar and Land Rover, or JLR, sales volumes which for the first six months and October were up by 6% and 24%, respectively, over the prior year. Our increased volume growth forecast is based on the significant expansion in the addressable market size owing to entry into new price segments coupled with significant increase in the model range to 20 from 12 models. Just in the U.S., the launch of new sedan XE and SUV F-pace will increase the addressable market size to 1.2 million vehicles from 4,00,000 vehicles. Our lower midcycle margin assumptions are driven by increasing competitive intensity, moderation in Chinese region margins, JLR's entry into lower-price luxury segments which would together move JLR margins toward its global peers which have presence in all the luxury price segments across all geographies.
While China remains a key growth driver for Tata Motors, its earnings should nonetheless be supported by a decent boost in ex-China sales. Looking more closely at JLR performance, ex-China JLR sales volumes grew by 14% in the first seven months versus a year ago. As for China, we believe the launch of XE and the locally produced Discovery Sport should support China volumes in the second half of the year. In addition, Tata India's EBITDA has increased to 6.8% from -1.6% in the prior year, as the truck market has turned around and new launches of passenger cars have led to 1.6% gain in market share. We expect Tata India to be bottomline profitable in fiscal 2017.
