Tata Motors is likely to remain on its growth path as the strength of

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its domestic operations would more than offset the weaknesses at Jaguar Land Rover, which itself could see a recovery in sales by next year, brokerage firm Merrill Lynch said today.

Tata Motors will see "strong operational recovery of its domestic business, which we believe should be the prime driver of stock valuations", Merrill Lynch said in a research report, adding that "Jaguar Land Rover is likely to recover next year".

Tata Motors is scheduled to disclose its financials next week and is currently negotiating with the British government to arrange long-term funds for the sustenance of JLR.

Despite the fact that volumes are likely to remain muted in developed markets such as the US and Europe, Merrill Lynch said that Tata Motors' consolidated business (standalone and domestic subsidiaries as well as JLR) is likely to register growth in net sales and earnings before interest, taxation, depreciation and amortisation.

Tata Motors' growth would be mainly driven by higher commercial vehicle sales, mainly trucks and buses, and lower commodity prices, because of which the company can achieve lower costs and can get higher realisation, the report said. Steel prices are down around 30 % year-on-year,which would save up to Rs 30,000 per vehicle, and vehicle discounts are down by Rs 10,000-20,000, which will also improve the bottom line.

Besides, Tata Motors is well positioned through a 50:50 JV with Brazil-based Marco Polo, a leading bus body builder, as the company has recently commissioned a 15,000 unit facility to cater to the public transport modernisation programme throughout the country, Merrill Lynch said.

New products are also likely to boost the company's bottom line. After "the launch of the compact model Indica Vista, we expect the upgrade of Indigo sedan in fiscal 2010 followed by the full-scale launch of low-cost car, Nano, at an entirely new price point", Merrill Lynch said.

"We believe that Tata Motors will be the fastest growing car company, albeit less profitable. Its new utility vehicle platform is due for end-FY10 launch, and in the interim, we expect market share losses to continue," the report said.

Slowdown has impacted sales and between the Jaguar and Land Rover, the former has fared much better, thanks to the XF model launch in 2008 (replacing the aged Stype). On the other hand, Land Rover's old models did not sell much. "We understand that JLR is negotiating with the British government to make available long-term finances to sustain operations.

Our forecasts factor borrowings of $ 1 billion to meet capex and working capital requirements over the next two years," the report added.