Tata Motors Analyst Day: D-St keeps faith intact; share price targets suggest up to 15% upside on stock

At Tata Motors Analyst Day, the management of the Tata group firm suggested a likelihood of a double-digit Ebitda margin and positive free cash flows (FCFs) in personal vehicle (PV) and commercial vehicle (CV) segments over the medium-term, in addition to positive Ebitda in e-PVs.

The auto major is looking to incur an annual capex spends of up to Rs 2,500 crore per annum in CVs and up to Rs 3,000 crore in PVs. Analysts, who attended the Analyst Day said, the management is expecting a EV capex of $2 billion till FY27.

Among other highlights included the management target of near-zero consolidated net-automotive debt for March 2025. Besides, the management suggested domestic PV and CV segments to see single-digit growth in FY24.

Post the Analyst Day meet, most brokers are positive on the Tata Motors stock, with their price targets ranging Rs 600-655 level, suggesting up to 14 per cent potential upside over Wednesday's closing of Rs 567.95.

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Nuvama Institutional Equities has upped its target on Tata Motors stock to Rs 645 from Rs 620 earlier.

"Our constructive view is driven by expectations of continuation of a cyclical upturn in JLR and domestic PVs/CVs, healthy product pipeline and order-book in JLR, which will improve the mix in favour of the more profitable Land Rover brand,  increasing focus on EVs in domestic and JLR businesses, margin expansion emanating from rising economies of scale and highly efficient, cost-cutting measures and reduction in leverage on account of robust FCFs," it said.

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.

Tata Motors, it said, will benefit from  the CV upcycle and stable growth in PVs, b) company-specific volume/margin drivers, and a sharp improvement in FCF, as well as a reduction in net debt in both JLR and the India business.

The stock trades at 19.2 times FY24 and 16.7 times FY25 consolidate PE and 4.9 times FY24 EV/Ebitda and 4.2 times FY25 EV/Ebitda. Motilal Oswal has a target of Rs 650 on the stock.

Tata Motors has expanded its EV network to 165 cities in FY23, from 75 cities in FY22, and dealership count also increased to 250 in FY23 from 143 in FY22. Nomura India noted that 65 per cent of Tata Motors' EV consumers are less than 35 years old. 56 per centof Tiago EV buyers are aged less than 40 years while 50 per cent of Tiago EV bookings are from outside of Top 20 cities. A total of 23 per cent of Tiago EV customers, on the other hand, are first-time buyers.

"Having Gen-2 EV models (EV first + ICE) in the portfolio could offer a competitive advantage if battery costs remain high for dedicated EV platforms," Nomura India said.

In the CV segment, the strategy to lower discounts and focus on value-selling can lead to further Ebitda  margin improvement for the industry, Nomura said.

"We currently factor in stable market share and Ebitda margins at 9.5-10 per cent over FY24-25F (FY23: 7.4 per cent). There can be some upside to these estimates on the successful execution of this strategy," it said.

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Among domestic brokerages, JM Financial has a target of Rs 615 on the stock. Kotak Institutional Equities has a different view on the stock, as it suggested a lower target ofRs 530.  

"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 TTMT, which we believe is completely priced-in at current market price," it said while downgrading the stock to 'Reduce' citing recent rally.

CLSA has a target of Rs 624 on the stock. Morgan Stanley finds the stock worth Rs 617. Nomura India has a share price target of Rs 610 for the stock. For Goldman Sachs, the stock is worth Rs 600.