ICICI Direct backs Tata Motors CV on strong margins, market leadership

ICICI Direct has assigned a ‘Buy’ rating to Tata Motors Commercial Vehicles (TMCV), valuing the stock at ₹500 on a sum-of-the-parts (SOTP) basis. The brokerage sees TMCV as a focused play on India’s commercial vehicle (CV) cycle, benefiting from structural improvements post-demerger and leadership in the medium and heavy commercial vehicle (MHCV) segment.

 

Standalone CV business with strong margins

 

After the demerger of its CV business into a separate listed entity, TMCV allows investors to participate directly in the CV cycle without earnings volatility from Tata Motors’ passenger vehicle and Jaguar Land Rover operations.

 

ICICI Direct highlighted the strong profitability metrics in Q2FY26, where TMCV posted Ebitda margins of 12.2 per cent, Ebit margins of ~9.8 per cent, and ROCE of ~45 per cent. Management’s focus on disciplined capex (2-4 per cent of revenues) and growing contributions from non-cyclical, high-ROCE segments such as parts, services, digital platforms, and fleet solutions further underscores the structural shift in the business.

 

 

Market leadership driving growth

 

TMCV remains the market leader in MHCVs, with retail market shares of ~49 per cent in heavy CVs, ~37 per cent in passenger buses, and ~30 per cent in light goods vehicles (FY25). Wholesale volumes in Q2FY26 grew ~12 per cent year-on-year (Y-o-Y), outpacing the industry’s ~8 per cent growth, with market share rebounding in the latter half of the quarter.

 

The brokerage expects sustained benefits from infrastructure spending, higher freight rates, fleet replacement demand due to aging vehicles, and road-led logistics growth. TMCV is targeting ~40 per cent market share in MHCVs, with margins expected to expand into the teens.

 

 

Iveco acquisition to expand global footprint

 

Tata Motors’ recent acquisition of Italy-based CV manufacturer Iveco (excluding its defense business) for €3.8 billion (~₹38,000 crore) is expected to diversify the company’s portfolio across LCVs, M&HCVs, buses, and drivetrains including diesel, CNG, and electric. The deal, executed at 0.3x P/S and 2x EV/Ebitda, is expected to achieve EPS breakeven in two years with debt repayment over four years. The acquisition is set to close by April 2026, and ICICI Direct has not factored it into current estimates.

 

 

Valuation and risks

 

The SOTP-based valuation of ₹500 incorporates 13x EV/Ebitda on FY28E and 1x P/B on long-term investments. Key risks, analysts believe, include slower-than-expected volume growth, especially from Dedicated Freight Corridor developments, and margin pressures from rising steel costs.

 

With the demerger now complete and TMCV separately listed on NSE and BSE, ICICI Direct sees the stock as a focused, high-quality play on India’s commercial vehicle cycle, underpinned by strong margins, leadership in MHCVs, and favourable industry tailwinds.

 

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