Tata Motors shares hit near two-year high on Jan sales, Budget infra push

Close 15% up at Rs 322.5, the highest since May 2018

Shares of Tata Motors rose sharply by 15.21 per cent to touch Rs 322.30 apiece on Tuesday — the highest since May 2018 — in light of positive developments like robust sales volumes in January and an emphasis on infrastructure in the Budget.

It was also aided by the strong operational performance of the consolidated enti­ty, including Jaguar Land Rover. The Tata Group flagship’s total commercial vehi­cles (CV) sales in the domestic market dropped 2 per cent to 30,764 units, compared with 31,348 units a year ago. However, medium and heavy commercial vehicles (MH­CVs), its cash cow, rose to 8,416 units, a 22 per cent rise over the previous year after several months of decline. A small base of last year and a gradual pickup in economic activity led to the increase. Even its intermediary and light commercial vehicles volumes advanced 29 per cent year-on-year (YoY).

By virtue of being the market leader — selling one in every two trucks – Tata Mot­ors will also be the key beneficiary of the huge thrust infrastructure projects got in the Budget, said analysts. Fin­ance Minister Nirmala Sitha­raman announced a slew of measures, including setting up of a development finance institution (DFI), allowing large-scale asset mo­netisa­tion, and allocating the highest-ever capital expe­n­diture of Rs 1.08 trillion for building highways. The total allocation for the highway sector is Rs 1.18 trillion, up 28 per cent from Rs 91,823 crore in 2020-21.

Meanwhile, Tata Motors’ passenger vehicles, which have been reporting a steady uptick in volumes for over a year, jumped 94 per cent YoY to 26,978 units in January, the highest in several years, on the back of good demand for all new generation models.

Encouraged by the operational performance in the third quarter, both domestic business and JLR, and the road ahead, most brokerages have upgraded estimates. The biggest surprise for the Street was significant free cash flow (FCF) generation (GBP 582 million in JLR; Rs 2,200 crore in India). “We are revising up consolidated FY22/23E (profit after tax) 23 per cent/12 per cent. More importantly, our FCF assumptions undergo strong upgrades. We now expect JLR and India to be FCF positive in FY21, with strong accretion in FY22 and FY23. Maintain ‘BUY’ with a revised SOTP (sum of the parts) based target price of Rs 366 (Rs 215 earlier) as we roll over to June 2022E,” wrote Chirag Shah and Jay Mehta, analysts at Edelweiss India Equity Research.

Others, too, have raised their estimates. “We are raising estimates over FY21-23 to factor in the improving outlook. The estimates for FY23E are revised upwards by 23 per cent,” wrote Adiya Makharia, analysts at HDFC Securities. Makharia has set a revised FY23 SOTP target price of Rs 315.