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Tata Motors shares: why the stock may rise as high as 31% – explained


Tata Motors-owned Jaguar Land Rover (JLR) is turning the corner and would be the main driver of the stock, domestic brokerage firm Motilal Oswal Securities said in a research note. The brokerage also said it was monetizing its stake in Tata Technologies – potential value of 25-47 per share for Tata Motors – could also act as a catalyst for the stock.

Motilal Oswal maintains a buy rating on the stock with a price target of 540, implying 31 percent upside potential for the stock from current levels.

For JLR, supply is gradually improving and demand is healthy. As inventories improve, JLR should approach net debt levels of zero in FY25, aided by improved production, better margins and freeing up working capital, the domestic brokerage firm said.

“JLR will structurally continue its journey from a premium brand to a premium luxury brand by focusing on its brand appeal strategy and redefining Jaguar with a premium positioning in the electric car era with new launches from CY25,” said Motilal Oswal Securities.

The brokerage said management is prioritizing JLR’s revenue over volume to gauge progress; sales are just 15 percent below their FY18 peak, while volumes are down 43 percent. “It will continue to focus on profitable growth and not just be a niche player,” the note said.

Management is confident in delivering an EBIT margin of 10 percent for JLR in FY26 (up from 3.7 percent in 3QFY23), driven by the normalization of many discontinuities such as chip premium costs, lower volume vendor compensation, raw material /energy costs; richer mix; favorable FX; and operational leverage.

This, the note said, is after accounting for some dilution in the mix and an increase in VME.

Aside from this, the brokerage believes working capital release (negative working capital activity) and controlled capex should help JLR move closer to zero net debt level by FY25E (at EUR 3.85 billion in December 2022), which is delayed by a few quarters . contrary to previous FY24 guidance.

Tata Motors should see a gradual recovery as supply-side issues ease (for JLR) and commodity headwinds stabilize (for the Indian business).

It is seen benefiting from a macro recovery in India, company-specific volume/margin drivers and a sharp improvement in free cash flow and leverage across both JLR and the Indian operations.

The stock trades at 15.2 times FY24E and 12.3 times FY25E consolidated P/E and 3.8 times FY24E and 3.2 times FY25E EV/Ebitda.

The views and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.