Tata Motors: PL revises share price target but downgrades stock rating; here's why

After a 145 per cent rally in shares of Tata Motors Ltd in the last one year, domestic brokerage Prabhudas Lilladher (PL) downgraded the Tata group stock to 'accumulate' from 'buy' but increased its target price on JLR volume ramp-up, focus on increasing market share in the PV segment and robust free cash flow (FCF) performance.

On Thursday, Tata Motors shares were up 0.6 per cent at Rs 985.40. PL's target price on the stock suggests a potential 9.09 per cent upside over this level. The stock is up 24 per cent in 2024 so far and 60 per cent in the last six months.

"We remain positive on Tata Motors based on: JLR’s volume ramp-up, leading to strong revenue, profitability, and FCF; a focus on increasing market share in the PV segment through model launches and rising EV penetration; and profitable and robust FCF performance, driven by margin expansion in the CV segment," PL said.

The broking firm adjusted its estimates primarily for the India businesses, resulting in a consolidated earnings per share (EPS) change of 0.4 per cent for FY24-FY26E, with an estimated CAGR of 12.4 per cent over the same period.

It increased its EV/Ebitda multiple for the India PV business to 13 times to align it more closely with Maruti Suzuki India Ltd.

"Consequently, our SoTP-based target price has been revised upwards to Rs 1,075. However, given the stock's sharp run-up over the last three months, we are downgrading our recommendation to 'ACCUMULATE' from 'Buy'," it said.

Tata Motors recently announced demerger of Tata Motors into two separate listed companies housing the commercial vehicles business and its related investments in one entity and the passenger vehicles businesses including PV, EV, JLR and its related investments in another entity.

PL said it met with the Tata Motors' management to understand the rationale behind the demerger and receive general business updates. Tata Motors, it said, is on track to meet its outlined operational metrics, viewing the demerger as having no impact on these objectives.

"Tata Motors expects demerger to offer greater manoeuvrability, aiming for both entities to operate in a self-sustaining manner. Although we see limited benefits in terms of value unlocking, TTMT's confidence reassures us of a sustainable recovery in both the India PV and JLR," it said.