CV upcycle gathers pace, but brokerages split on Tata Motors outlook

Nomura, which has a 'Buy' rating on Tata Motors with a target price of ₹547, sees clear signs of a CV upcycle gathering momentum, driven by improving industry fundamentals.

A pickup in freight rates, rising fleet utilisation and a long-awaited replacement cycle are breathing fresh life into India’s commercial vehicle (CV) market, strengthening the investment case for Tata Motors’ CV arm (TMCV). 

Yet, despite a broadly steady December quarter (Q3) performance, brokerages remain divided on whether the upswing is strong enough to offset margin pressures, adverse product mix and concerns around market share and overseas exposure, reflected in a wide divergence in ratings and target prices.

Freight revival lifts sentiment on CV cycle

Nomura, which has a ‘Buy’ rating on Tata Motors stock with a target price of ₹547, sees clear signs of a CV upcycle gathering momentum, driven by improving industry fundamentals. According to the brokerage, fleet utilisation levels have climbed to 74-80 per cent, freight rates have moved higher following recent GST changes, and replacement demand has begun to revive as transporter profitability improves and financing costs ease. 

Reflecting this trend, Tata Motors’ CV segment posted revenue of ₹21,700 crore in the December quarter, up 16 per cent year-on-year (Y-o-Y), while earnings before interest, tax, depreciation and amortisation (Ebitda) rose 19 per cent to ₹2,720 crore. Ebitda margin came in at 12.5 per cent, broadly in line with consensus expectations, though slightly below Nomura’s estimate of 13 per cent. 

Nomura flagged a miss on average selling prices (ASPs), which declined 2 per cent quarter-on-quarter (Q-o-Q) to ₹0.191 crore, largely due to an adverse product mix. Nevertheless, it believes recent price hikes should help offset commodity cost pressures, while moderating discounts could support margins going forward. 

Management commentary, as cited by Nomura, pointed to a positive demand outlook at least until the first half of FY27, aided by rising tipper demand, healthy prospects in the bus segment, particularly electric buses, and strong export growth driven by SAARC nations and Africa. Tata Motors plans to deliver around 6,000 buses to various states next year.  ALSO READ | Muted Q3 show leads analysts to retain 'Sell' on Colgate-Palmolive India

Emkay stays bullish; Motilal flags valuation, share concerns

Emkay Global Financial Services also remains constructive on the CV cycle, maintaining a ‘Buy’ rating with a target price of ₹650, and describing the December quarter as ‘steady’ despite a modest revenue miss. The brokerage highlighted Tata Motors’ market-share gains in domestic medium and heavy commercial vehicles (MHCVs), with share rising nearly 100 basis points sequentially to about 47.9 per cent. 

While ASPs fell around 2 per cent sequentially due to an unfavourable mix, reflecting a lean bus quarter and higher small commercial vehicle volumes, Emkay noted that underlying demand drivers remain robust. These include a 2-5 per cent rise in freight rates post GST changes, a 23 per cent Y-o-Y increase in e-way bill volumes, and improving transporter profitability. 

Commodity headwinds, estimated to have impacted margins by about 50 basis points (bps) each in the December and March quarters, have largely been addressed through portfolio-wide price hikes of about 1 per cent taken in January 2026, along with tighter control on discounts, Emkay said. It expects double-digit CV demand growth to sustain until at least the first half of FY27 and believes Tata Motors is well positioned to lead a multi-year upcycle. 

Contrastingly, Motilal Oswal struck a more cautious tone, reiterating its ‘Neutral’ rating with a target price of ₹431. The brokerage flagged margin pressure from higher input costs as a key reason for Tata Motors’ earnings miss against its estimates in the December quarter, and expressed concern over a gradual loss of market share across key CV segments. 

Motilal Oswal also highlighted risks from the company’s Iveco acquisition, which could expose Tata Motors to global macro uncertainties and lead to a de-rating if overseas demand weakens. While it has already factored in a recovery in domestic CV demand, estimating a 9 per cent volume CAGR over FY25-28, it believes margins are likely to remain stable rather than expand meaningfully. 

After the recent rally, Motilal Oswal said the stock appears fairly valued at over 24 times FY27 estimated earnings, limiting further upside in the near term.  ALSO READ | Nippon Life shares advance 4% in weak market as Q3 profit jumps

Valuation gap reflects split view

Nomura values Tata Motors’ India CV business at 13 times EV/Ebitda and Iveco at four times EV/Ebit, arriving at its sum-of-the-parts target price of ₹547, implying about 16 per cent upside from current levels. However, it cautioned that a slower economic recovery or weaker free cash flow generation at Iveco could pose downside risks. 

As the CV cycle turns decisively upward, Tata Motors stands to benefit from its scale and product breadth. Whether that translates into sustained stock outperformance, brokerages suggest, will hinge on margins holding up and market-share concerns easing as the cycle matures. 

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