Tata Motors shares hit record high after CLSA raises target price

Shares of multibagger Tata Motors Ltd rose to a record high in early trade today after international brokerage CLSA raised its price target on the stock to Rs 690 from Rs 624 earlier. Tata Motors stock hit an all-time high of Rs 589.15 in the current session against the previous close of Rs 573.05 on BSE. The auto stock has surged 48% this year and has zoomed 478% in three years.

Tata Motors stock opened higher at Rs 579.95 on Wednesday against the previous close of Rs 573.05. Market cap of the firm rose to Rs 1.94 lakh crore. Total 5.29 lakh shares changed hands amounting to a turnover of Rs 30.87 crore on BSE. Tata Motors stock hit a 52-week low of Rs 375.50 on December 26, 2022.

In terms of technicals, the relative strength index (RSI) of Tata Motors stood at 62.8, signaling it's trading neither in the overbought nor in the oversold zone. Tata Motors stock has a one-year beta of 1.2, indicating high volatility during the period. Tata Motors shares are trading higher than the 5 day, 20 day, 50 day, 100 day and 200 day moving averages

The international brokerage firm has raised Tata Motors’ earnings forecast for financial year 2024 and 2025 by 11 percent and 18 percent respectively, led by higher margin estimates for its UK-unit Jaguar Land Rover (JLR) and its commercial vehicles business.

For financial year 2024, CLSA sees JLR's EBITDA margin coming at 6.1 percent.

Margin estimates for Tata Motors' Commercial Vehicle business are also seen higher on the back of falling commodity costs since the March quarter of financial year 2023 and stable pricing. The brokerage expects EBITDA margin of 10.5 percent in the current financial year, which is in-line with the management's guidance of double-digits.

The stock has recovered over 800% from their pandemic lows of 2020. The auto stock, which fell to a low of Rs 63.60 on March 24, 2020 during the Covid-19 blues has clocked a stellar rebound of 826% till date.

Sharekhan has a buy rating on the stock with a target price of Rs 633. The brokerage expects continued improvement in JLR, PV and CV business along with a reduction in net automotive debt from current levels. The EV business continues to gain traction and the management is expecting it to be EBITDA positive in the near to medium term.

Brokerage firm Prabhudas Lilladher said that India's largest electric vehicle (EV) maker has expanded its manufacturing capacity by nearly three times in the last three years.

The recent buy of Ford's Sanand plant has raised the automobile major's capacity to 1 million units per year. A potential savings of Rs 5,000 crore were achieved through prudent capital deployment in acquiring the plant, analysts at Prabhudas Lilladher said. The brokerage has an accumulate call on the stock with a target of Rs 605.

Brokerage Jefferies has raised the target price on the Tata Group stock to Rs 700 from an earlier Rs 665 in a base case scenario. Jefferies sees a maximum upside of 40% for the stock at a price target of Rs 790 per share.

"The price target of Rs 700 is based on 11X FY25E EV/ EBITDA for India CVs, 10X FY25E EV/EBITDA for India PVs, 2.3X FY25E EV/EBITDA for JLR, and 50% discount to transaction value in stake sale to TPG for India EVs," Jefferies said in a note.

Analysts from Jefferies said Tata Motors' British arm Jaguar Land Rover (JLR) has successfully scaled back its break-even production levels by 50 percent in the fiscal year 2023. As part of its transition to an all-electric platform, Jaguar plans to cease vehicle assembly at the Castle Bromwich plant. This strategic move is expected to enhance the company's utilisation levels, according to analysts.

ICICI Direct has a target of Rs 700 with a buy call on the Tata Motors stock.

According to the brokerage, the company’s future price performance depends on the intent to go auto net debt free by FY25 though healthy CFO generation and sale of non-core assets (including stake sale in Tata Tech). Other factors to watch out for are JLR guiding for free cash flow generation of £2 billion & net debt reduction to less than £1 billion by FY24E.