Tata Motors share price targets see upward revisions; debt reduction a key catalyst for stock, say analysts

Tata Motors reported a beat on Q4 Ebitda, as JLR margin surprised positively on better product mix and lower input costs, said a few brokerages, who raised share price targets for the stock post March quarter results. Analysts largely see JLR production ramp-up, a recovery in domestic commercial vehicle (CV) volumes and a reduction in debt while maintaining their positive stance on the Tata group stock.

Nomura India has revised upward its stock price target to Rs 610 from Rs 508. For Nomura, the numbers were broadly along expected lines. It said Tata Motors' consolidated Ebitda was largely in line with its forecast, but ahead of Bloomberg consensus’ estimate. Margins, it said, may trend up across segments while suggesting that debt reduction would be a key catalyst for the stock.

Goldman Sachs has raised its price target to Rs 600 on the stock, Jefferies has upped its target on Tata Motors to Rs 665 while JPMorgan has also increased its target on the scrip to Rs 455. CLSA has raised its target on Tata Motors to Rs 624 from Rs 544.

Volume growth, Nuvama Institutional Equities said, is likely to be driven by JLR production ramp-up and the huge pending order book (200,000 units), particularly for new models—Defender, Range Rover, Range Rover Sport. The brokerage sees 13 per cent volume CAGR for JLR over FY23–25E.

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In India operations, the brokerage said recovery in domestic CV volumes is expected on improving

macros, government thrust on infra spending and replacement demand. Domestic PV volumes should continue to trend up moderately led by EV demand and marketing push, it added while expecting 5-6 per cent volume CAGR for the two segments in FY23–25E.

"Our constructive view is driven by expectations of cyclical upturn in JLR and India CV/PV segments, notable margin expansion and debt reduction, it said while upping its share price target to Rs 625 from Rs 565 earlier.

Tata Motors had on Friday reported a second consecutive quarterly profit, helped by price hikes and strong demand for cars in its luxury Jaguar Land Rover (JLR) stable as well as for commercial trucks. The company posted a consolidated net profit of Rs 5,408 crore for the January to March quarter, compared with a loss of Rs 1,033 crore in the year-ago period.

The company's revenue from operations jumped 35 per cent to Rs 1.06 lakh crore in Q4FY23 as against Rs 78,439 crore in Q4FY22.

Motilal Owsal Securities said it has upgraded its consolidated EPS estimates by 13 per cent for FY24 and 6 per cent for FY25 to factor in JLR’s volume ramp up as well as moderation in certain costs, and margin improvements in India businesses. This brokerage has a target of Rs 590 for the stock.

Tata Motors, Motilal Oswal said, should witness a healthy recovery as supply-side issues ease (for JLR) and commodity headwinds stabilise (for the India business). It will benefit from the CV upcycle and stable growth in PVs, the company-specific volume/margin drivers, and a sharp improvement in free cash flow (FCF) as well as reduction in net debt in both JLR and the India businesses.

Kotak Institutional Equities said Tata Motors reported a steady set of numbers, with JLR and domestic CV business Ebitda coming in line with its expectations. Domestic PV business Ebitda margin, it said, came in 50 bps below its expectations on higher marketing spends.

"Auto business FCF generation remained strong at Rs 11,300 crore in 4QFY23 (Rs 7,800 crore in FY2023). 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 the company," it said while suggesting a fair value target of Rs 530 for the stock.

On Monday, the stock rose 2.32 per cent to hit a high of Rs 527.60 on BSE.

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