Nuvama turns cautious on Tata Motors CV biz despite inline Q2 profitability

In Q2, Tata Motors' standalone revenue rose 9% Y-o-Y to ₹16,860 crore, coming in 3% below Nuvama's forecast due to an unfavourable mix that weighed on average selling prices.

Nuvama on Tata Motors Commercial Vehicles (TMCV): Domestic brokerage Nuvama Institutional Equities (Nuvama) has maintained a cautious stance on Tata Motors’ commercial vehicle (CV) business after its September-quarter (Q2FY26) performance, which largely met expectations on profitability but reflected weaker-than-anticipated realisations and a subdued medium-term outlook for the domestic heavy truck cycle.

 

In Q2, Tata Motors’ standalone revenue rose 9 per cent year-on-year (Y-o-Y) to ₹16,860 crore, coming in 3 per cent below Nuvama’s forecast due to an unfavourable mix that weighed on average selling prices. 

 

Volumes grew 12 per cent to 94,681 units, but realisations declined 3 per cent to ₹1.78 million per unit. Despite softer revenue, earnings before interest, tax, depreciation and amortisation (Ebitda) increased 27 per cent to ₹2,080 crore, broadly matching estimates, as the Ebitda margin expanded 170 basis points (bps) to 12.3 per cent, supported by improved operating leverage and sustained cost-reduction efforts. Other income surged 58 per cent to ₹280 crore, while adjusted PAT nearly doubled to ₹1,350 crore, aided by lower interest costs and a favourable tax rate. Reported earnings were hit by an exceptional loss of ₹2,360 crore linked to mark-to-market adjustments in Tata Capital.

 

 

Going forward, Nuvama expects a marked deceleration in the Medium and Heavy Commercial Vehicle (MHCV) cycle. After a strong 23 per cent volume compound annual growth rate (CAGR) between FY21 and FY25, the brokerage forecasts just 2 per cent CAGR over FY25-28.  

CATCH STOCK MARKET LIVE UPDATES TODAY

 

Factors influencing this slowdown include high fleet utilisation levels, rising competitive pressure from the Indian Railways – particularly with the launch of the Western Dedicated Freight Corridor – and a challenging base effect. Consequently, Tata Motors’ M&HCV market share is projected to slip modestly from 46.4 per cent in FY25 to 45.7 per cent by FY28.

 

On the positive side, Tata Motors continues to strengthen its electric CV roadmap. The company has delivered about 3,700 EV units across passenger and cargo applications and is evaluating participation in upcoming tenders following government assurances on payment security. Its electric small commercial vehicle, the Ace EV, has received encouraging market traction with 1,300 units already delivered.

 

Factoring in improved margin expectations and lower discounting, Nuvama has raised its FY26-28 Ebitda estimates by 4-7 per cent. However, it retains its ‘Reduce’ rating with a revised target price of ₹300, valuing the company at 10x Sep-27 enterprise value (EV)/Ebitda plus ₹14 per share of investment value. The stock currently trades at 12x FY27 and FY28 EV/Ebitda, above the brokerage’s comfort levels.