Tata Motors DVR hits over 6-month high, soars 63% in six weeks

Tata Motors is eyeing "near-zero" debt in the next three years as it looks to significantly deleverage its business, reduce expenses and put the leash on non-core investments

Shares of Tata Motors Differential Voting Rights (DVRs) continued their northward movement, hitting an over six-month high of Rs 63.95, up 5 per cent in intra-day trade on the BSE on Tuesday. The stock of the Tata group company was trading at its highest level since February 24, 2020. In the past six-weeks, it has rallied 63 per cent, as against 3 per cent rise in the S&P BSE Sensex.

Thus far in the month of September, Tata Motors DVR has gained 26 per cent after its promoter Tata Sons acquired more than 5 million shares worth Rs 30 crore, via open market.

On September 4, Tata Sons purchased 5.3 million shares, representing 1.04 per cent stake of Tata Motors DVR, at price of Rs 56.02 per share on the NSE via bulk deal, the exchange data show. The names of the sellers could not be ascertained immediately. As of June 30, 2020, Tata Sons held 5.26 per cent stake in Tata Motors DVR, the shareholding pattern data show.

Meanwhile, shares of Tata Motors were up 3 per cent, as compared to 0.63 per cent rise in the Sensex, thus far in the current month.

At the company's 75th Annual General Meeting (AGM) on August 25, Tata Motors chairman N Chandrasekaran said that the company is eyeing "near-zero" debt in the next three years as it looks to significantly deleverage its business, reduce expenses and put the leash on non-core investments.

"The target to be near net debt zero by FY24 is built on three key pillars; business-level free cash flow (FCF) generation, the monetization of non-core assets, and top-up equity (if required). Business-level FCF generation is the key part of the plan and pivoted on, revenue improvement, cost-cutting, and capex control plans laid out for four key businesses (incl. NBFC)," he said.

With good support from the China, EU, and US governments, demand recovery is expected to be underway from 2HFY21. Jaguar Land Rover (JLR) should also benefit from the new Defender and PHEV Evoque/Discovery Sport.

Analysts at Motilal Oswal Financial Services expect JLR's volumes (including the JV) to post an 8 per cent CAGR over FY20–23E (after 4.4 per cent decline over FY17–20). This, coupled with possible improvement in the mix and a reduction in variable marketing spends, should drive further improvement in realizations.

"JLR has several levers, both cyclical and structural, in the form of targeted cost-cutting of GBP1.5–2 billion (incl. GBP300 million savings in depreciation post impairment), mix improvement (growth in Land Rover and China), operating leverage, cost savings on the modular platform on full rollout of the modular strategy, and the low-cost Slovakia plant. The convergence of multiple factors stated above could drive recovery in EBIT (earnings before interest and tax) margins and leave scope for surprises on profitability," the brokerage firm said in stock update report. It has 'buy' rating on Tata Motors with target price of Rs 227 per share.