 "Tata Motors")
Passenger vehicle (PV) and commercial vehicle (CV) player Tata Motors (TaMo) listed out its plans for the electric vehicle (EV) segment in an investor meeting on Wednesday. On the operational front, the company also mentioned it is targeting at reaching a double-digit earnings before interest, tax, depreciation, and amortisation (Ebitda) margin in the medium term.
Most brokerages have maintained a bullish stance on the stock, mostly giving it a ‘buy’ rating. Some like Kotak Institutional Securities gave a ‘reduce’ rating. The stock, however, has fallen marginally by 1.46 per cent on the BSE, ending the day’s trade at Rs 559.65 apiece.
TaMo has outlined a plan to introduce six/seven models across alternative powertrains over the next three to four years. Moreover, with a strong commitment to the EV sector, TaMo plans to invest approximately $2 billion in the next four years, primarily directed towards the development of innovative platforms and products.
India’s market leader in EVs, it is looking to increase localisation of its EVs to 85 per cent by 2025 to reduce 15 per cent in component costs. It plans strategic tie-ups with over 20 high-voltage component suppliers in the next three to four years and has over 600 non-EV component suppliers.
At present, TaMo has less than 70 per cent localisation from tier I suppliers. Tata Group outlined an investment of Rs 13,000 crore to set up India’s first lithium-ion cell manufacturing gigafactory in Gujarat last week.
In the first phase, the plant will have a production capacity of 20 gigawatt-hour. Setting up an EV cell battery manufacturing plant will reduce the dependence on third-party suppliers mostly based out of China and, in turn, insulate the company from supply-chain disruptions. There are plans for another EV battery plant in the UK for the Jaguar Land Rover (JLR) unit.
TaMo is actively driving electrification in CVs. It has a joint venture with Cummins, focusing on zero-emission technologies, including battery EVs, hydrogen internal combustion engines, and hydrogen fuel cell vehicles.
According to Motilal Oswal Securities, TaMo should witness a healthy recovery as supply-side issues ease (for JLR) and commodity headwinds stabilise (for the India business).
“It (TaMo) will benefit from the CV upcycles and stable growth in PVs, company-specific volume/margin drivers, and a sharp improvement in free-cash-flow as well as a reduction in net debt in both JLR and the India business,” says the brokerage.
Prabhudas Lilladher remains positive on TaMo. The brokerage expects the CV segment to benefit from ongoing upcycle, operating leverage, and tailwinds from lower commodity costs and lower discounting.
PhillipCapital predicts TaMo to capitalise on strong demand in the CV sector, thanks to favourable market conditions, such as high freight rates, increased vehicle utilisation, infrastructure development initiatives by the government, an ageing vehicle fleet, and the implementation of a scrappage policy.
“Given the exciting product line-up and new future launches for JLR and domestic PV business, we expect the order book to remain healthy. Focus on turning Ebitda-positive in EVs while continuing product development and developing an ecosystem augurs well,” says the brokerage, which valued the stock at Rs 654 and maintained a ‘buy’ call.
Kotak Institutional Securities, however, gave a ‘reduce’ rating to the stock, mainly due to valuations. While it believes that increased competitive intensity from Chinese players in the EV segment in global markets remains a key risk for the JLR business in the coming years, the brokerage says, “A gradual recovery in JLR volumes, led by an improvement in chip availability, steady demand trends in the domestic market, and balance-sheet deleveraging, augur well for TaMo, which we believe is completely priced-in at current market price.”
It has downgraded the stock to ‘reduce’ after a recent rally with a fair value of Rs 530.
After the investor meet, 16 of the 18 analysts polled (according to Bloomberg) have a ‘buy’/‘overweight’/‘outperform’ rating on the stock; one is ‘hold’ and one is ‘reduce’. Their average target price is Rs 622.3.
