Tata Motors Ltd Q2 results largely met with analyst estimates. The key highlights for the quarter were Jaguar Land Rover's raising of EBIT margin guidance, India EV operations narrowing losses and domestic commercial vehicle segment's strong show on a richer mix and commodity deflation. The guidance on deleveraging of balance sheet was also maintained. Analysts said revenue growth for Tata Motors is likely to be driven by production ramp-up and the huge pending order book of 168,000 units, particularly for high realisation and margin models—Defender, Range Rover and Range Rover Sport. They largely maintained their 'Buy' calls on the stock.
Emkay Global said Tata Motors' consolidated numbers missed its estimates on temporary production constraints for Land Rover driving the poor mix, lower margin.
"Guidance for JLR EBIT margin, though, has been raised to 8 per cent for FY24 (6 per cent earlier; 8 per cent in 1H), as the production run-rate is likely to gradually improve in 3Q/4Q with normalising mix and FCF of 1.25 billion pounds in 2H. We believe domestic CV volume will peak in FY24, but our margin outlook stays resilient, given pricing discipline/benign commodity prices," Emkay Global said while raising its target on the stock to Rs 760 from Rs 750 earlier.
Motilal Oswal Securities said Tata Motors should witness a healthy recovery as supply-side issues ease for JLR and commodity headwinds stabilise for the India business.
"It will benefit from: a) the CV uptrend and stable growth in PVs, b) company-specific volume/margin drivers, and c) a sharp improvement in FCF as well as a reduction in net debt in both JLR and India businesses. The stock trades at 14.3 times each on FY24E/FY25E consolidate P/E and 4.7 times/3.9 times EV/Ebitda. Reiterate BUY with a December 2025 SOTP-based target of Rs 750," it said.
CLSA has a target of Rs 803 on the stock. Morgan Stanley sees the stock worth Rs 711.
Nuvama Institutional Equities said Tata Motors remained its one of the top picks on expectations of a sales cycle recovery, margin expansion and debt reduction. Over FY23–26E, the uptrend across JLR and India business shall drive a revenue CAGR of 12 per cent, it said.
"Besides, better mix and cost control shall bolster Ebitda CAGR to 30 per cent, not to mention much lower ‘friction’ from the reduction in net debt-to-equity to 0.3 times in FY26E (from 1.7x in FY23) spurred by strong FCF. Maintain ‘BUY’ with a September SoTP of Rs 840 per share," it said.
Emkay said Tata Motors' two new SUV launches are expected to drive performance in the India PV business Q1FY25 onwards. Tata Motors reiterated its guidance for deleveraging the balance sheet, to be net-debt-free for India business by FY24-end and for JLR by FY25-end.
"Overall, FY2024E performance will remain strong given healthy performance of JLR business and commodity tailwinds, which will drive balance sheet deleveraging. However, slowdown in developed markets amid higher interest rates remains a key concern for the JLR business. Upgrade to REDUCE with a revised fair value of Rs 630," said Kotak Institutional Equities.
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