Analysts see over 18% upside in Tata Motors; here's why

Brokerages have retained 'Buy' rating on Tata Motors post the recent JLR investor day meet.

Tata Motors has been a star outperformer so far this calendar year 2023. The stock has surged near about 49 per cent till date, with almost 33-per cent of rally coming in the last three months. In comparison the NSE Nifty 50 index had gained 3.7 per cent so far this year, and has vaulted over 8 per cent in the last three months.

Post the recent investors' meet of Jaguar Land Rover (JLR), analysts remain bullish on Tata Motors. Going ahead, based on June 13 closing price of Rs 561.80 on the BSE, they see up to 18.4 per cent upside in the stock. 

Here's what these five brokerages have to say:

Jefferies

Target Price: Rs 665

Upside: 18.4%

The brokerage firm has retained its ‘Buy’ rating on the stock, as they expect JLR and India business to perform well in FY24, driving strong earnings growth and deleveraging.  By FY25E, Jefferies expect EBITDA to be 2.1x of FY23, EPS to rise to an all-time high, and auto balance sheet to turn net cash. For FY24-25 EBITDA and EPS are 11-12 per cent and around 40 per cent above street, respectively.  

Key takeaways:

• India business is benefiting from good demand cycle and improving PV (Passenger Vehicle) franchise
   
• In India PVs, the new SUV-focused strategy and product styling are promising. Tata has taken an early lead in the Indian electric PV market
   
• JLR’s chip issues are easing, driving a big turnaround in operational and financial performance

Phillip Capital

Target Price: Rs 650

Upside: 15.7%

Analysts at Phillip Capital remain optimistic on Tata Motors on expectations of a healthy order book, given the exciting product line up and new future launches of JLR and domestic PV business. They foresee a revenue target of more than GBP 28 billion in FY24 and over GBP 30 billion in FY26. 

Key takeaways:

• New brand strategy: Transitioning to a house of brands  - Range Rover, Defender, Discovery and Jaguar
   
• Breakeven volumes down to 300k units p.a. in FY23 from 400k in FY21
   
• Market share to improve for high profitability cars (e.g. Range Rover) from 12 per cent in H2FY23 to 17 per cent in FY26 

Motilal Oswal 

Target Price: Rs 650

Upside: 15.7%

The brokerage firm expects Tata Motors to witness a healthy recovery as supply-side issue ease (for JLR) and commodity headwinds stabilize (for the India business). The company will benefit from the CV (Commercial Vehicle) upcycle and stable growth in PVs. Reduction in net debt both in JLR and India business to also augur well.

Key takeaways:

• Reduction in discounts in CVs helped to improve realizations. The company wants to increase realizations to above 90 per cent of the list price
   
• PVs, including Electric Vehicles (EVs) are targeting margin improvement 
   
• For FY24, India business capex is expected to be around Rs 80 billion, with over 50 per cent of it invested in green technology

Sharekhan 

Target Price: Rs 633

Upside: 12.7%

Sharekhan expects Tata Motors to benefit from all its business verticals – JLR, CVs, PVs. H2FY24 is expected to strong as compared to H1FY24, aided by volume growth and better operational efficiencies backed by aggressive product launches, market positioning, product differentiation, cost savings, and investments in R&D.  witness a healthy recovery as supply-side issue ease (for JLR) and commodity headwinds stabilize (for the India business). The company will benefit from the CV (Commercial Vehicle) upcycle and stable growth in PVs. Reduction in net debt both in JLR and India business to also augur well.

Key takeaways:

• With a healthy response to its new products and it’s market penetration strategies the market share in PV segment has improved from 4.8 per cent in FY20 to 13.8 per cent in FY23
   
• The PV business has transformed significantly because of strong sales momentum with the ‘New Forever’ portfolio and EV traction 
   
• Going ahead, the management expects double digit margin in CV business compared to 7.4 per cent in FY23 

Nuvama

Target Price: Rs 645

Upside: 14.8%

Analysts at Nuvama  have retained the ‘Buy’ rating on expectations of a continuation of a cyclical upturn in JLR and domestic PVs/CVs. The company shall benefit from a healthy product pipeline and order book at JLR. Further, it expects margin expansion emanating from rising economies of scale and highly-efficient cost cutting measures.

Key takeaways:

• Company expects EV share in overall volumes to reach nearly 26 per cent by FY26
   
• Management reiterated EBIT margin to expand notably from 2 per cent in FY23 to 6 per cent+ in FY24E and 10 per cent+ in FY26E 
   
• FY24 free cash flow expected at GBP 2 billion. Net cash target to be achieved by Mar-25E