Tata Motors shares rise after CLSA rating upgrade; here's target price

Tata Motors Ltd has received a rating upgrade from CLSA as the foreign brokerage believes an adverse near-term outlook has given scope to enter the counter at favourable valuations. The foreign broking firm has suggested a 'High-Conviction Outperform' on Tata Motors from just 'Outperform' earlier, with a target price of Rs 930, hinting at 36 per cent potential upside ahead.

Following the upgrade, the stock was trading at Rs 687.70 on BSE, up 0.89 per cent. The Tata group stock has correction 37 per cent in the past six months amid weak demand outlook and fears of additional import tariffs on Europe by the US, which could hurt JLR's US sales. There have been investor concerns around weak demand environment in key markets of JLR like EU, China, UK, along with the risk of import tariffs getting implemented in US. EBIT margin guidance of 10 per cent by the JLR management may be tough to achieve in current demand environment, CLSA said.

Key catalysts for the stock include monthly retail demand/discounting for JLR in key markets, tariff implementation by US on imports from EU, if any; Chinese OEMs grabbing market share in EU and UK, domestic M&HCV monthly retails and new launches in India PV portfolio.

At present, the British arm JLR trades at 1.2 times estimated FY27 EV/Ebitda which, CLSA said, is way below its normative multiple of 2.5 times. This shows the extent of uncertainty on the business outlook ahead, it said.

"Another way to infer that would be partial de-rating from 2.5 times to 2 times and 25 per cent cut in Ebitda estimate. Thus, current price of JLR is already building in sub-8 per cent EBIT margin and 10 per cent volume decline in FY26. During adverse times in the past, JLR’s balance sheet had GBP 3-4 billion of net debt against our expectation of sub-GBP 1 billion at end FY25," CLSA said.

CLSA suggested that the implied per share value of JLR comes in at Rs 320 against the target valuation of Rs 450 per share as per its sum of the parts valuations. This, the foreign brokerage believes, offers enough cushion against the impact of the US tariff hike and weaker than expected demand and margin.

Tata Motors reported a 22 per cent YoY drop in profit at Rs 5,451 crore for the December quarter, led by a slowdown in JLR business and muted demand outlook for key markets like China. Revenue from operations rose 3 per cent YoY to Rs 1.13 lakh crore. For the quarter, JLR's EBIT margins improved 9 per cent YoY, but a bulk of its margin improvement was driven by a reduction in depreciation, analysts noted adding that margins in India CV and PV businesses were boosted by PLI accruals.

"We are building in 5 per cent decline in goods M&HCVs for TTMT in FY26, in-line with our industry outlook, leaving limited scope for cut in numbers there. Post a couple of subdued years for M&HCVs, we believe cyclical revival from FY27, would start getting priced in coming quarters, as we enter FY26. We upgrade TTMT to HC O-PF from O-PF, with unchanged target of Rs 930," CLSA said.

After a couple of subdued years of medium and heavy commercial segment, CLSA expects a cyclical revival from FY27 to start getting priced in over the coming quarters.

Within Nifty, the consensus is building in a recovery for consumer discretionary sector and Tata Motors could be a key contributor, Emkay Global said on February 16, while suggesting a target price of Rs 950 on the stock.

"We expect margin pressure to persist at JLR over FY24-27E, given: weak demand in key regions, rising cost pressure as it invests in demand generation, and EV ramp-up, which is likely to be margin-dilutive. Even in India, both CV and PV businesses are seeing a moderation in demand. For lack of any triggers, we reiterate our Neutral rating with a Dec’26E SoTP-based target of Rs 755," MOFSL said post Tata Motors' Q3 results.