Tata Motors nears record high on improved outlook; zooms 50% so far in 2023

Improved gross cash accruals and strong liquidity position with the management's focus to attain zero net auto debt is expected to lead to significant improvement in leverage and debt coverage metrics

Shares of Tata Motors rose 3 per cent to hit a fresh multi-year high of Rs 582.60 on the BSE in Tuesday’s rangebound trade on an improved business outlook. In comparison, the S&P BSE Sensex was down 0.10 per cent at 63,102 at 01:15 pm.

The stock of the Tata Group passenger cars & utility vehicles company was trading close to its record high level of Rs 606, touched on February 3, 2015. Thus far in the calendar year 2023, it has rallied 50 per cent as compared to a 3.2 per cent rise in the S&P BSE Sensex.

For the first time in six years, Tata Motors has recommended a dividend. It announced a dividend of Rs 2 per ordinary share of face value Rs 2 each (at 100 per cent) and Rs 2.10 per ‘A’ ordinary share (at 105 per cent) for FY23. The company has fixed July 29, 2023 as the record date for the purpose of determining the entitlement of members to receive final dividend.

Tata Motors is witnessing an improvement in all business verticals – Jaguar and Land Rover (JLR), commercial vehicles (CVs), and passenger vehicles (PVs).

The company is witnessing robust demand and is expected to deliver better operational efficiencies, aided by aggressive launches, market positioning, product differentiation, cost savings, and investments in research and development (R&D).

Q4FY24 was the second consecutive quarter in a row when JLR, PV, and CV businesses, simultaneously reported a sequential improvement in margins.

CARE Ratings, on June 15, upgraded the credit rating assigned to the bank facilities and instruments of Tata Motors due to the significant improvement in the overall credit profile of the company on account of improved operating performance in FY23 attributed to improved volumes and product mix and higher realisations in both JLR and India.

Furthermore, easing inflation and supply chain issues, improved semiconductor supplies and operations contributed to improvement in the company’s operating performance.

CARE Ratings believes that improved gross cash accruals (GCA), strong liquidity position with the management’s focus to attain zero net auto debt by FY25 will lead to significant improvement in leverage and debt coverage metrics over the medium term.

As a part of divesting certain non-core investments, the company plans to sell its 20 per cent stake in Tata Technologies (TTL) through IPO of TTL, the proceeds of which will support Tata Motor’s debt reduction plans. Furthermore, Tata Motors continues to enjoy immense financial flexibility by virtue of being part of the Tata group.

Analysts at ICICI Securities maintain 'BUY' on Tata Motors stock tracking profitability at the helm in domestic CV & PV business (including EVs), JLR's progressive volume recovery on the anvil, reiterated commitment towards EVs & healthy FCF generation.

The management has shared optimistic outlook ahead on volume performance in JLR business due to gradual improvement in supply chain issues and said it aims to register double-digit EBITDA margin in domestic CV and PV business.

Further the company is looking for a positive EBITDA margins in its EPV business in near term, said brokerage firm Sharekhan in a report. The brokerage maintains 'Buy' rating on the stock with SOTP-based revised price target of Rs 633.