Tata Motors hits new high; up 2% after setting price band for Tata Tech IPO

Analysts have a positive view on Tata Motors primarily tracking guidance of record profitability and cash flow generation at JLR for FY24E, strong intent to become net debt free (auto) by FY25E.

Shares of Tata Motors hit a new high of Rs 683.95, up nearly 2 per cent on the BSE in Thursday’s intra-day trade after its subsidiary Tata Technologies set the price band of Rs 4750 - 500 per share for its upcoming initial public offer. The stock of automobile company surpassed its previous high of Rs 677.90 touched on October 16, 2023.

At the upper end of the price band, the size of the Tata Technologies' IPO will stand at Rs 3,042.5 crore, while the company will be valued at Rs 20,283 crore. The minimum lot size for an application is 30 shares.

Tata Technologies will launch its initial public offering on November 22 and close of November 24. This will be the first maiden share sale by a Tata group firm in nearly two decades. The last IPO from India's most valuable conglomerate was that of Tata Consultancy Services in 2004.

This IPO provides, inter alia, a reservation of up to 6.09 million equity shares, i.e., 10 per cent of the Offer, for subscription by eligible shareholders of Tata Motors, i.e., individuals and HUFs who are the public equity shareholders (including shareholders holding Ordinary Shares and ‘A’ Ordinary Shares in Tata Motors)

Meanwhile, shares of Tata Motors ‘A’ Ordinary Shares or DVR (Differential Voting Rights), too hit a new high of Rs 464.90, gaining 2 per cent on the BSE.

ICICI Securities expects it to have positive rub-off effect on the company as 10 per cent of the issue size was reserved for retail shareholders of Tata Motors as well. With Tata Motors holding 50 per cent plus stake in Tata Technologies post its partial stake sale in IPO, this is indeed value accretion event for Tata Motors, it said.

Meanwhile, in another development, global rating agencies the S&P Global Ratings and Moody's Investors Service upgraded the Long-term issuer credit and issue ratings of Tata Motors and its wholly-owned subsidiaries (TML Holdings Pte. Ltd and Jaguar Land Rover Automotive Plc).

Tata Motors cash flow should strengthen over the next 12-18 months on improving operating conditions in India and at its 100 per cent subsidiary, Jaguar Land Rover Automotive PLC (JLR), PTI reported quoting S&P Global Ratings statement. The stable rating outlook reflects our view that Tata Motors' cash flow and leverage will steadily improve over the next 12-18 months, with support from improved operational performances, especially at JLR, the statement added.

On the company's debt reduction plans, Moody's estimated that Tata Motors would reduce its gross debt by almost 40 per cent by March 2024 from March 2022 levels, having already reduced debt by 25 per cent as of March 2023.

"Sustained debt reduction and earnings expansion will pave the way for Tata Motors' leverage, measured by Moody's adjusted consolidated gross debt/Ebitda, to steadily improve to less than 3 times from around 4 times at March 2023 and 6.4 times at March 2022," said Kaustubh Chaubal, senior vice president and lead analyst for Tata Motors at Moody's.

On a lower base, analysts at ICICI Securities expect volumes at JLR to grow at a CAGR of 13 per cent to 4.75 lakh units by FY25 vs. 3.72 lakh units in FY23. EBITDA margins are seen improving from 11.3 per cent to 15.8 per cent in similar timeframe.

Tata Motors is aiming to be auto net debt free by FY25 (~Rs 43,700 crore as of FY23) amidst healthy CFO generation and calibrated capex spends, given the impending need to accelerate spending towards electrification.

The brokerage firm has a positive view on Tata Motors primarily tracking guidance of record profitability and cash flow generation at JLR for FY24E, strong intent to become net debt free (auto) by FY25E & market share gain aspirations across product categories.